## Related questions with answers

DuraTech Manufacturing is evaluating a process improvement project. The estimated receipts and disbursements associated with the project are shown below. $MARR$ is 6 percent/year.

$\begin{array}{|c|c|c|} \hline \text { End of Year } & \text { Receipts } & \text { Disbursements } \\ \hline 0 & \$ 0 & \$ 5,000 \\ \hline 1 & \$ 0 & \$ 200 \\ \hline 2 & \$ 2,000 & \$ 300 \\ \hline 3 & \$ 4,000 & \$ 600 \\ \hline 4 & \$ 3,000 & \$ 1,000 \\ \hline 5 & \$ 1,600 & \$ 1,500 \\ \hline \end{array}$

a. What is the annual worth of this investment?

b. What is the decision rule for judging the attractiveness of investments based on annual worth?

c. Should DuraTech implement the proposed process improvement?

Solution

VerifiedSolve first the net cash of the project which is the difference between the receipts and disbursements. The table below shows the net cash per year.

End of Year | Receipts | Disbursements | Net Cash (A) |
---|---|---|---|

$0$ | $\$0$ | $\$5,000$ | $-\$5,000$ |

$1$ | $\$0$ | $\$200$ | $-\$200$ |

$2$ | $\$2,000$ | $\$300$ | $\$1,700$ |

$3$ | $\$4,000$ | $\$600$ | $\$3,400$ |

$4$ | $\$3,000$ | $\$1,000$ | $\$2,000$ |

$5$ | $\$1,600$ | $\$1,500$ | $\$100$ |

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