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Business, 19.03.2021 18:50 Travisbennington

A company has the opportunity to take over a redevelopment project in an industrial area of a city. No immediate investment is required, but it must raze the existing buildings over a four-year period and, at the end of the fourth year, invest $2,400,000 for new construction. It will collect all revenues and pay all costs for a period of 10 years, at which time the entire project, and properties thereon, will revert to the city. The net cash flows are estimated to be as follows: Year End Net Cash Flow

1 $500,000
2 $300,000
3 $100,000
4 $2,400,000
5 $150,000
6 $200,000
7 $250,000
8 $300,000
9 $350,000
10 $400,000

Tabulate the PW versus the interest rate and determine whether multiple IRRs exist. If so, use the ERR method when e 8% per year to determine a rate of return. A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be approximately $18,000 per year over the six-year study period. Use the PW method and a MARR of 18% to determine whether this is a good investment.

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