Rincon, LLC is considering a project that will require an initial investment of $750,000 with estimated net income of $135,000 per year for 10 years. (a) Determine the IROR, PI, and PW values at MARR = 12% per year. (b) For which of these measures is the project economically justified? (c) Reflect on the answers above and the breakeven i*. Is there any MARR value that will cause any of the three measures to result in different conclusions about the economic viability of the project? Explain your answer.
What will be an ideal response?
(a) IROR: 0 = -750,000 + 135,000(P/A,i*,10)
i* = 12.4%
PI = 135,000(P/A,12%,10)/?-750,000?
= 135,000(5.6502)/750,000
= 1.02
PW = -750,000 + 135,000(P/A,12%,10)
= -750,000 + 135,000(5.6502)
= $12,777
(b) By all three measures, since IROR > 12%; PI > 1.0 and PW > 0 at MARR = 12%
(c) The function = RATE(10,135000,-750000) displays 12.4148% as the breakeven i*.
No, all values of MARR above or below the breakeven will generate the same decision for all three measures.
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