A window frame manufacturer is searching for ways to improve revenue from its triple-insulated sliding windows, sold
Question:
A window frame manufacturer is searching for ways to improve revenue from its triple-insulated sliding windows, sold primarily in the far northern areas of the United States. Alternative A is an increase in TV and radio marketing. A total of $300,000 spent now is expected to increase revenue by $60,000 per year. Alternative B requires the same investment for enhancements to the in-plant manufacturing process that will improve the temperature retention properties of the seals around each glass pane. New revenues start slowly for this alternative at an estimated $10,000 the first year, with growth of $15,000 per year as the improved product gains reputation among builders. The MARR is 8% per year and the maximum projection period is 10 years for either alternative. Use
(a) Payback analysis,
(b) Present worth analysis (for 10 years) to select the more economical alternative. State the reason(s) for any difference in the alternative chosen between the two analyses.
(c) Find the payback and present worth values using a spreadsheet.
MARRMinimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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