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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