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A store plans on investing on a new grill oven that costs P100,000

Economics

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A store plans on investing on a new grill oven that costs P100,000. It will generate revenues of P2,500 per day and expenses of P800 per day. Suppose the store will be operating 320 days in a year. Evaluate the acceptability of this investment if the grill oven will have a lifespan of six years and MARR is 10% per year. Use PW (present worth) method. What is IRR?

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NPW = Cash flow * Discounting factor

Discounting factor = (1/(1+i)ⁿ

Where,

i= interest rate

n = number of year

Calculation of NPW :-

Intial Cost at year 0 = 100000

Per day revenue = 2500

Per day expenses = 800

Annual revenue = 320(2500-800)

= 540000

NPW of annual revenues = $\sum Discounting factor for 6years @10%$ * Annual revenue

$\sum Discounting factor for 6years @10%$ = 0.9091 + 0.8264 + 0.7513 + 0.6830 + 0.6209 + 0.5645 =4.3552

NPW of annual revenue = 4.3552 * 544000 = 2369229

NPW of project = NPW of annual revenue - Initial Cost 2369229 - 100000

= 2269229

Thus the project is acceptable

Calculation of IRR :-

please see the attached file for the complet solution.

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A store plans on investing on a new grill oven that costs P100,000

Economics