Lifeware, a manufacturer of women's sports clothes, is considering adding a line of skirts and jackets....
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Lifeware, a manufacturer of women's sports clothes, is considering adding a line of skirts and jackets. The production would take place in a part of its factory that is now not being used. The first output would be available in time for the 2015 fall season. The following information is available: New Product Line Information First cost in 2014 ($) Planned output (units/year) Observed, current dollar MARR before tax Study period Year 2014 Prices ($/unit) Materials Labour Output 15,500,000 325,000 0.25 6 years 12 7.75 35 (a) What is the real internal rate of return? (b) What inflation rate will make the real MARR equal to the real internal rate of return? (c) Calculate the present worth of the project under three possible future inflation rates: 1%, 2% or 3% per year. (d) Decide if Lifeware should add this new line of skirts and jackets. Provide your explanation. Lifeware, a manufacturer of women's sports clothes, is considering adding a line of skirts and jackets. The production would take place in a part of its factory that is now not being used. The first output would be available in time for the 2015 fall season. The following information is available: New Product Line Information First cost in 2014 ($) Planned output (units/year) Observed, current dollar MARR before tax Study period Year 2014 Prices ($/unit) Materials Labour Output 15,500,000 325,000 0.25 6 years 12 7.75 35 (a) What is the real internal rate of return? (b) What inflation rate will make the real MARR equal to the real internal rate of return? (c) Calculate the present worth of the project under three possible future inflation rates: 1%, 2% or 3% per year. (d) Decide if Lifeware should add this new line of skirts and jackets. Provide your explanation.
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A You can use the following equation to calculate the real internal rate of return IRR where N is th... View the full answer
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