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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Expert Answer

Khribechy
Answered 2021-08-24 Author has 100 answers

Concept used:
Write the formula to calculate the interest rate.
P=A×((1+i)n1i(1+i)n) .......(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.
Rate %Applied To6Equipment replacement8New equipment10New prouct in normal market12New product in new product16New product in new product20New product in foreign market
Calculation:
Substitute $50,000 for P $9,000 for A and 10 years for n in Equation (I).
$50,000=$9,000×((1+i)101i(1+i)10)
i=12.4%
As 12.4%>8%.
The new product in the new market should be accepted as proposed.
Conclusion:
Interest rate for evaluating project B is 12.4%.
The new product in the new market should be accepted as proposed.

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