Question: Two alternate designs are to be evaluated for a certain new project that has been proposed. Design Y involves a present investment of $100,000. Estimated
Two alternate designs are to be evaluated for a certain new project that has been proposed. Design Y involves a present investment of $100,000. Estimated annual receipts for 20 years are $45,000; estimated annual disbursements for everything except income taxes are $20,000. Design Z involves a present investment of $140,000, estimated annual receipts for 20 years of $64,500, and annual disbursements for everything except income taxes of $36,000. It is expected that there will be no value remaining in the project after 20 years regardless of the choice between the two designs. Estimated annual income taxes will be $8,000 with design Y and $8,600 with Z. Compute the prospective after-tax rate of return on the project with design Y and with design Z. Compute the prospective after-tax rate of return on the extra investment required for design Z. If the after-tax i* is 10%, would you recommend Y, Z, or neither? anwser is 16.2=y , 13%=z y is the better option
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