 # The interest rate for evaluating the project. Given: Project B has a cost of $50,000. Annual benefit is$9,000. glasskerfu 2021-08-23 Answered
The interest rate for evaluating the project.
Given: Project B has a cost of $50,000. Annual benefit is$9,000.
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Concept used:
Write the formula to calculate the interest rate.
$P=A×\left(\frac{{\left(1+i\right)}^{n}-1}{i{\left(1+i\right)}^{n}}\right)$ .......(I)
Here, the project cost is P, annual benefit is A, the time period is n and interest rate is i.
Table giving the example risk adjusted MARR values in manufacturing.
$\begin{array}{|cc|}\hline \text{Rate %}& \text{Applied To}\\ 6& \text{Equipment replacement}\\ 8& \text{New equipment}\\ 10& \text{New prouct in normal market}\\ 12& \text{New product in new product}\\ 16& \text{New product in new product}\\ 20& \text{New product in foreign market}\\ \hline\end{array}$
Calculation:
Substitute $50,000 for P$9,000 for A and 10 years for n in Equation (I).
$\mathrm{}50,000=\mathrm{}9,000×\left(\frac{{\left(1+i\right)}^{10}-1}{i{\left(1+i\right)}^{10}}\right)$
$i=12.4\mathrm{%}$
As $12.4\mathrm{%}>8\mathrm{%}$.
The new product in the new market should be accepted as proposed.
Conclusion:
Interest rate for evaluating project B is $12.4\mathrm{%}$.
The new product in the new market should be accepted as proposed.