- Proposal A: The auto airbages prodction divion submitted a proposal for anew airbag model the would cost $ 2,355,600 to develop. The antipated revenue stream for the next 10 years was $ 400,000 per year

Question

- Proposal B: The aerospace divison proposed the development of new radar surveillance equipment. The anticipated cost was $2,442,700 The
anticipated revenue stream for this project is $ 450,000 per year for the next ten years.
- Proposal C: Was a 2nd proposal from the auto airbag diviso. It called for specail equipment to be used int eh disposal of enviromentally harmful waste material created in the manuafacturing process. the equipment cost of $ 145,680 and was expected to provide cost savings of
$ 15,000 per year for 15 years
-Proposal D- Was a 2nd prospal fromt eh aeropsace division, It called for the development of a new form of a microelectric control system that could be used for fighter jets that were still in the design stage at anotehr aerospace company. If the other aerospace company was successfuk in the development of the figher jets, they would be sold to underveloped countries in various sectors of the world. The cost to produce the microelectric control system was $ 1,262,100 and the best guess estimate was the athe investment would return $ 300,000 a year for the next eight years.
Needed:
1. Compute the internal rate of return and the net present value for each of the four proposals.
2. Based strictly on the calculation, which proposal should ne accepted or rejected. Use the appropraite divisional discount rate. The net present value preovides the ansewer directly while the internal rate of return must ne compared to the discount rate (which is the saem as the required rate of return)
3.What subjective elements might override or influence any of the answers provided to question 2
4.Assume the head of the aerospace divison asked for a secoind review on the new radar surveillance equipment (Proposal B). He maintains that the numbers presented in Proposal B are correct, but he wants you the analyst, to know that $ 300,000 has already been spent on the initial research on thsi project. (Its not included in the $ 2,441,700). He suggests that this might influence your decision, What should be your response?

Answer 1

I don't know what you want. The first thing I would do is calculate the present value of all these, something easy enough to do on a spreadsheet. Are you putting these on a single spreadsheet and doing that?

Answer 2

Bob - Thanks for the quick responce
I need to compute the internal rate and the net present value for each of the 4 proposal. I am unsure how to caluate the rate of retuen and the net presnt value. Can you help?