2: A potential project is described monetarily in the table below:

First Cost

Annual Benefits

Life (years)

Salvage Value

$250,000

$75,000

4

$30,000

Additionally, the product of the project is a new type of heart valve. It will be sold by a heart pacemaker manufacturer. Often, the pacemaker recipients also need a heart valve.

a) Based on the example risk-adjusted interest rates for manufacturing projects shown in Table 15-2, which of those interest rates should be used to evaluate whether this project should be done or not?

Consider the situation represented by Table 151 and Figure 152. For a capital expenditure budget of $1.2 million ($1.2 10 6 ), what does the opportunity cost? 1052 SOLUTION From Figure 152 we see that the eight projects with a rate of return of 20% or more require a cumulative investment of $1.2 (10 6 ). We would take on these projects and reject the other four (7, 11, 10, and 12) with rates of return of 18% or less. The best-rejected project is 7, and it has an 18% rate of return. Thus the opportunity cost is 18%. EXAMPLE 15-

Answer: < 10 pts>

Reasoning:

b) What is the irr of this project?

Answer: < 10 pts>

Reasoning:

c) Should this project be done?

Answer: < 5 pts>

Reasoning: