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Calculation Of Estimated Cost Of A Project
Question
Your company intends to commence production of polyvinyl chloride automotive components for Magna Int. The anticipated life of this project is six years. The annual (end of year) revenue is expected to be $X/year (in each of the six years). MARR (the minimum attractive rate of return) for your company is r%. The estimated costs of this project (including initial costs) are given below:
End of year |
Costs |
0 |
$22,500,000 |
1 |
$ 4,000,000 |
2 |
$ 5,000,000 |
3 |
$ 6,000,000 |
4 |
$ 7,000,000 |
5 |
$ 8,000,000 |
6 |
$Z |
Determine:
a) the present value of all costs if Z = 3,500,000 and r = 12%
b) the value of Z if the equivalent uniform annual value of the cash flow is $3,200,000, X=2Z, and r =10%
c) the value of X that would make the external rate of return of the Project 12% if Z = 9,000,000 and r = 10%
d) the internal rate of return of the project if X = 14,500,000 and Z = 9,000,000
e) the minimum value of X that would make the project (economically) acceptable if r = 15 % and Z = 5,000,000
Summary
The question belongs to Finance and it discusses about calculation of estimated costs for a project.
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