ISEN 608

Homework # 2
Section 700
Due on
13 February 2020

Problem # 1

“Your Money or Mine” is an private investment company based in College Texas. This company is
planning to build a public storage facility in University Avenue in College Station. The company is
asking the ISEN 608 students to assist them to review the expected cash flows for the next twelve years
and let the “Your Money or Mine” stockholders know if this project is recommended if the minimum
attractive rate of return (MARR) is 15%. Use the following methods for the justification
1. Net Present Value
2. Internal Rate of Return
3. Benefit/Cost ratio (a ratio of higher than 2 is ideal)
4. Payback period (a period less than 7 years is ideal)
5. Is payback method economically sound?

EOY Net Cash Flows

0 -50,000
1 -70,000
2 -100,000
3 30,000
4 50,000
5 70,000
6 100,000
7 100,000
8 100,000
9 100,000
10 100,000
11 100,000
12 100,000
Problem # 2

“HI Tec Joe” has recently been about two years ago in College Station. Over this period the business has
been tripled and the company’s CEO is planning to expand the operation by moving to a larger facility.
Four sites have been visited. Cash flows for each option have been recorded for the next ten years. If the
minimum acceptable rate of return (MARR) is 12%, which project would you recommend to the “HI Tec
Joe” CEO using
1. Net present value (NPV) analysis
2. Internal rate of return (IRR)
3. In your opinion, between NPV and IRR, which solution must be adopted?

EOY Project # 1 Project # 2 Project # 3 Project # 4

0 -40,000 -50,000 -70,000 -100,000
1-10 8,000 10,000 13,000 18,000
Problem # 3

“Sustainability” is a new manufacturing company recently formed by a few students enrolled in ISEN
608. The company is strong advocate of green concept and is planning to donate some money to the City
of College Station to open a park for cycling and running. The want to know if the Collee of Engineering
can secure 12% return annually on their donation, how much “Sustainability” should endow to ensure the
$25,000 annually needed for the upkeeping cost of this park. City of College Station plans to name this
park in honor of the donor as the “Sustainability Green Zone”.