A large project requires an investment of $200 millions. The construction will take 3 years: $30 million

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A large project requires an investment of $200 millions. The construction will take 3 years: $30 million will be spent during the first year, $100 million during the second year and $70 million during the third year of construction. Two project operation periods are being considered: 10 years with the expected net profit of $40 million per year and 20 years with the expected net profit of $32.5 million per year. For simplicity of calculations it is assumed that all cash flows occur at end of year. The company minimum required return on investment is 10%. Calculate for each alternative:
(a) The payback periods
(b) The total equivalent investment cost at the end of the construction period
(c) The equivalent uniform annual worth of the project (use the operation period of each alternative) Make your recommendations based on the foregoing economic parameters.
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Engineering Economic Analysis

ISBN: 9780195168075

9th Edition

Authors: Donald Newnan, Ted Eschanbach, Jerome Lavelle

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