(b) Ford Automobiles is considering investing in a new manufacturing facility that will cost $10 million. The facility is expected to have a useful life of 20 years and generate annual revenue of $4 million with an annual operating cost of $1.5 million. The facility will also require a major renovation at the end of the tenth year, which will cost $5 million. At the end of the 20-year useful life, the facility can be sold for $1 million. Assuming a required rate of return of 12%, what is the annual worth of the investment in the facility? Should the company invest in the facility?

(b) Ford Automobiles is considering investing in a new manufacturing facility that will cost $10 million. The facility is expected to have a useful life of 20 years and generate annual revenue of $4 million with an annual operating cost of $1.5 million. The facility will also require a major renovation at the end of the tenth year, which will cost $5 million. At the end of the 20-year useful life, the facility can be sold for $1 million. Assuming a required rate of return of 12%, what is the annual worth of the investment in the facility? Should the company invest in the facility?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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