Answer:
a. The $7002.73 new annual net income is necessary to recover the initial investment of the five GIS systems at the annual effective interest rate of 10%
b. Since $6000 revenue is less than $7002.73 project is not viable financially.
Explanation:
a
. Total initial cost = 4600*5
= $23000
Total Salvage Value = 300*5
= $1500
Operating cost = $1000 with a gradient of $100.
PV of operating cost = 1000(P/A,5,10%) + 100(P/G,5,10%)
= 1000(P/A,5,10%) + 100(P/A,5,10%)(A/G,5,10%)
= 1000*3.7908 + 100*3.7908*1.8101
= 3790.8 + 686.17
= $4476.97
PV of salvage value = 1500(P/F,5,10%)
=1500*0.6209
= $931.35
NPV = -23000 - 4476.97 + 931.35
= - $26545.62
annual revenue to get $26545 = 26545.62(A/P,5,10%)
= 26545.62*0.2638
= $7002.73
Annual Revenue = $7002.73
Therefore, The $7002.73 new annual net income is necessary to recover the initial investment of the five GIS systems at the annual effective interest rate of 10%
b. Since $6000 revenue is less than $7002.73 project is not viable financially.
