Answer:
Lockheed Martin needs to make $3,476,250 per year (during 8 years) to cover their costs and investment required for the project if their MARR is 12%.
Explanation:
required investment -$13,000,000
operating costs per year = -$900,000
8 years useful life, salvage value of $500,000
to calculate the annual worth we need to determine capital recovery of the project:
capital recovery = [-$13,000,000 x annuity factor PV (A/P, 12%, 8)] + [$500,000 x annuity factor (A/F, 12%, 8)] = (-$13,000,000 x .2013) + ($500,000 x .0813) = -$2,616,900 + $40,650 = -$2,576,250
this means that Lockheed Martin would need to earn $2,576,250 during 8 years just to recover their investment.
since the company will also incur in yearly operating costs, they must include them to determine the total annual worth of the project:
annual worth = -$2,576,250 - $900,000 = -$3,476,250
