Norton Company Is Considering a Project That Will Require an Initial

question 83

Essay

Norton Company is considering a project that will require an initial investment of $750,000 and will return $200,000 each year for 5- years.
a) If taxes are ignored and the required rate of return is 9%, what is the project's net present value?
b) Based on this analysis, should Norton Company proceed with the project?
Below is a table for the present value of $1 at compound interest. $$\begin{array} { l l l l } \text { Year } & 9 \% & \text { Year } & 9 \% \\\hline 1 & 0.917 & 6 & 0.596 \\2 & 0.842 & 7 & 0.547 \\3 & 0.772 & 8 & 0.502 \\4 & 0.708 & 9 & 0.460 \\5 & 0.650 & 10 & 0.422\end{array}$$ Below is a table for the present value of an annuity of $1 at compound interest. $$\begin{array} { l l l l } \text { Year } & 9 \% & \text { Year } & 9 \% \\\hline 1 & 0.917 & 6 & 4.486 \\2 & 1.759 & 7 & 5.033 \\3 & 2.531 & 8 & 5.535 \\4 & 3.240 & 9 & 5.995 \\5 & 3.890 & 10 & 6.418\end{array}$$

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Definitions:

Productivity Of Labor

Productivity of labor measures the output that is produced per unit of labor employed, reflecting how efficiently labor resources are utilized in the production process.

Production Possibilities Frontier (PPF)

A curve depicting all the possible combinations of two goods that can be produced within an economy, given a set of inputs and technology, assuming efficiency in production.

Labor Deepening Technology

Refers to investments in technology that increase the productivity of each worker.

Standard Of Living

A measure of wealth, comfort, material goods, and necessities available to a person or community.