Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 31

Fairmont Industries primarily relies on 100% eq­uity financing to fund projects. A good opportunity is available that will require $250,000 in capital. The Fairmont owner can supply the money from personal investments that currently earn an aver­age of 7.5% per year. The annual net cash flow from the project is estimated at $30,000 for the next 15 years. Alternatively, 60% of the required amount can be borrowed for 15 years at 7% per year. If the MARR is the WACC, determine which plan, if either, should be undertaken. This is a before-tax analysis.