Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 21

A firm is considering purchasing equipment to manufacture a new product. The equipment will cost $3M, and expected net cash inflows are $0.35M indefinitely. If market demand for the product is low, then over the next five years the firm will have the option of discarding the equipment on a secondary market for $2.2M. Assume that MARR = 12%, a = 50%, and r = 6%. What is the value of this investment opportunity for the firm