View the step-by-step solution to:

Question

The Blazer Corporation is considering investing in a piece of equipment that will enable them to produce a new

product for a new market. Using the information provided, calculate the specified items and answer the following questions: 

1. What are the payback period, initial ROI and net present value of this project? 

2. Would you recommend investing in this project? What facts and factors went into your decision and why?  

3. If you were comparing this project to another potential project with an NPV of $18,000 and 14%, in which project would you invest?  

4. Now think about risk management. What uncertainties about the future might make you think about not going ahead with this project? Why?  

Show your work so that the reader can see that you understand the concept and how you arrived at the numbers and decisions that you present. Items 2-4, answer in word format

Cost of equipment $75,250.00  


Installation cost $2,450.00  


Annual maintenance contract (yearly cost) $1,200.00  


Estimated life of the equipment - 5 years  

  

Estimated Net income from sales of product the machine makes Dollars  Present Value 

Year 1  $14,000.00  $13,565.89 

Year 2  $23,000.00  $21,595.76 

Year 3  $27,500.00  $25,020.36 

Year 4  $32,500.00  $28,652.64 

Year 5  $9,000.00  $7,688.54 

Total $106,000.00  $96,523.19




Blazer's Weighted Average Cost of Capital - 3.20%  

Blazer's desired ROI on projects - 200.00%  

Annual Maintenance Contract Dollars  Present Value 

Year 1  $0.00  $0.00

Year 2  $1,200.00  $1,126.74 

Year 3  $1,300.00  $1,182.78 

Year 4  $1,400.00  $1,234.27 

Year 5  $1,500.00  $1,281.42 

Total  $5,400.00  $4,825.21

Top Answer

Please refer... View the full answer

IRR 2.JPG

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question