lāke Quiz8.(new question) An engineer proposes to spend $95,000 on a capital projectto upgrade a package delivery system. The project is expected to have laborsavings of $20,000 a year plus reduce scrap costs by $5000 a year. There isexpected to be no salvage value at the end of the equipment life, which isanticipated to be 7 years. MARR is 12%. This question is in five parts.The engineer next performs a sensitivity analysis for a best case and worst casescenario:Best CaseWorst CaseInitial Cost$95,000$110,000Labor Savings$25,000$15,000Scrap Cost Reduction$6,000$4,000Part 3: Is the project justified according to the present worth (PW) in theworst case scenario?O NoYes

present worth formula: PW = initial cashflow + present value of future cashflow

Best Case Worst Case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,000 Part 3: Is the project justified according to the present worth (PW) in the worst case scenario? O No O Yes

Best Case Worst Case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,000 Part 3: Is the project justified according to the present worth (PW) in the worst case scenario? O No O Yes

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 17P

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an engineer proposes to spend $95,000 on a capital project to upgrade a package delivery system. The project is expected to have labor savings of $20,000 a year plus reduce scrap costs by $5,000 a year. There is expected to be no salvage value at the end of the equipment life, which is anticipated to be 7 years. MARR is 12% What is the Present worth of the worst case scenario? best case worst case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,000
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