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A store plans on investing on a new grill oven that costs P100,000
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?
Expert Solution
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 = 
* Annual revenue
= 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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