You want to launch a printing services business on campus. The initial cost to get the...
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You want to launch a printing services business on campus. The initial cost to get the business running with a September 1st launch date would be $2,000. You estimate that the revenues would approximately offset your costs (e.g. paper, toner, etc.) in the first month of operation so that the monthly profit would be $0. Afterwards, you estimate that profits would increase by $80 each month until the end of the academic year (i.e. $80 profit in October, $160 profit in November, etc. until the end of April). Your annual MARR is 10%, compounded monthly. (a) Calculate the internal rate of return for your investment based on an 8 months study period. Select the appropriate IRR between options 1 to 4 below. (b) Suppose that you now consider another investment opportunity for your printing business services, also with monthly profits, and the internal rate of return of 3%. Is this alternative economically feasible based on IRR? Select the appropriate option between options 1 and 2 below. Select 2 correct answer(s) Part (a) Option 1: PW--$2,000+ $80(P/A, i*,7)(P/F, i*,1)=0 and IRR= -20.81% Part (a) Option 2: PW--$2,000+ $80(P/G, i*,8)=0 and IRR=1.92% Part (a) Option 3: PW--$2,000(A/P, i*,8)+$80(P/A, i*,7)(P/F, i*,1)=0 and IRR=9.28% Part (a) Option 4: PW--$2,000+$80(P/A, g, i*,8)=0 with g=0.8 and IRR <0.5% Part (b) Option 1: Yes Part (b) Option 2: No You want to launch a printing services business on campus. The initial cost to get the business running with a September 1st launch date would be $2,000. You estimate that the revenues would approximately offset your costs (e.g. paper, toner, etc.) in the first month of operation so that the monthly profit would be $0. Afterwards, you estimate that profits would increase by $80 each month until the end of the academic year (i.e. $80 profit in October, $160 profit in November, etc. until the end of April). Your annual MARR is 10%, compounded monthly. (a) Calculate the internal rate of return for your investment based on an 8 months study period. Select the appropriate IRR between options 1 to 4 below. (b) Suppose that you now consider another investment opportunity for your printing business services, also with monthly profits, and the internal rate of return of 3%. Is this alternative economically feasible based on IRR? Select the appropriate option between options 1 and 2 below. Select 2 correct answer(s) Part (a) Option 1: PW--$2,000+ $80(P/A, i*,7)(P/F, i*,1)=0 and IRR= -20.81% Part (a) Option 2: PW--$2,000+ $80(P/G, i*,8)=0 and IRR=1.92% Part (a) Option 3: PW--$2,000(A/P, i*,8)+$80(P/A, i*,7)(P/F, i*,1)=0 and IRR=9.28% Part (a) Option 4: PW--$2,000+$80(P/A, g, i*,8)=0 with g=0.8 and IRR <0.5% Part (b) Option 1: Yes Part (b) Option 2: No
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