CustomMetalworks is considering the expansion of their cable fabrication business for towers, rigging, winches, and many other uses. They
have available $250,000 for investment and have identified the following
indivisible alternatives, each of which will provide an exit with full return of
the investment at the end of a 5-year planning horizon. Each year,
CustomMetalworks will receive an annual return as noted below. MARR is
12%.
Investment Initial Investment Annual Return
1 $25,000 $7,500
2 $40,000 $12,000
3 $85,000 $20,000
4 $100,000 $22,000
5 $65,000 $17,000
For the original problem:
a. Which alternatives should be selected by CustomMetalworks?
b. What is the present worth for the optimum investment portfolio?
c. What is the IRR for the optimum investment portfolio?
In addition to the original opportunity statement, CustomMetalworks has
determined that investments 3 and 4 are mutually exclusive and
investment 5 is contingent on either investment 1 or 2 being funded.
d. Now, which alternatives should be selected?
e. What is the present worth for the optimum investment portfolio?
f. What is the IRR for the optimum investment portfolio?
Reconsider the original problem:
g. Determine the optimum portfolio (state the investments selected and the
portfolio PW) using (1) the current limit on investment capital, (2) plus
20%, and (3) minus 20%.
h. Determine the optimum portfolio (state the investments selected and the
portfolio PW) using (1) the current MARR, (2) a MARR of 14.4%, and
(3) a MARR of 9.6%.