1.Three mutually exclusive design alternatives are being considered. Theestimated cash flows for each alternative are given in the table below. The MARR ofthe company is 20% per year. At the end of its useful life, the investment will be soldwith end-of-life market values given in the table.AB$28,000 $55,000$15,000$13,000$23,000 $28,000$8,00010 years24.7%Investment costAnnual expensesAnnual revenuesMarket value at the end of life $6,000Useful life10 yearsIRR26.4%с$40,000$22,000$32,000$10,00010 years22.4%(a) Explain why the decision should not be made by comparing IRR values for thethree alternatives.(b) Recommend the best alternative by using an appropriate method.

The provided questions include MARR and viable alternatives, which fall under the core Economics…

1. Three mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given in the table below. The MARR of the company is 20% per year. At the end of its useful life, the investment will be sold with end-of-life market values given in the table. A B с $28,000 $55,000 $40,000 $15,000 $13,000 $22,000 $23,000 $28,000 $32,000 $8,000 $10,000 10 years 10 years 24.7% 22.4% Investment cost Annual expenses Annual revenues Market value at the end of life $6,000 Useful life 10 years IRR 26.4% (a) Explain why the decision should not be made by comparing IRR values for the three alternatives. (b) Recommend the best alternative by using an appropriate method.

1. Three mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given in the table below. The MARR of the company is 20% per year. At the end of its useful life, the investment will be sold with end-of-life market values given in the table. A B с $28,000 $55,000 $40,000 $15,000 $13,000 $22,000 $23,000 $28,000 $32,000 $8,000 $10,000 10 years 10 years 24.7% 22.4% Investment cost Annual expenses Annual revenues Market value at the end of life $6,000 Useful life 10 years IRR 26.4% (a) Explain why the decision should not be made by comparing IRR values for the three alternatives. (b) Recommend the best alternative by using an appropriate method.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. The firm's MARR is 20% per year. The estimated cash flow for each alternative are as follows: Alternative A Alternative B Capital Investment $20,000 $30,000 Annual Expenses 4,000 2,000 Useful life (years) 5 10 Market Value (at end of useful life) $4,000 $6,000 Assume the study period is shortened to five years. The market value of alternative B after five years is estimated to be $12,000. Which alternative would you select using NPW-C? (Draw the cash flow diagram and solve).
DRAW CASH FLOW DIAGRAM Calculate the capitalized cost of a project that has an initial cost of P8,000,000 and an additional cost of P250,000 at the end of every 8 years. The annual operating costs will be P150,000 at the end of every year for the first 5 years and P200,000 thereafter. In addition there is expected to be recurring major rework cost of P500,000 every 13 years. Assume i=12%
You have decided to open a microbrewery selling university-themed beers as one of your product lines. You need to conduct a breakeven analysis of sales and price. You know your fixed costs but based on your marketing plan you are not sure of pricing and sales. Your company MARR is 5%, and fixed costs include an initial capital investment of $250,000 with fixed annual expenses of $100,000. Use a 5-year planning horizon and assume that these expenses will not grow with inflation. a. Draw the cash flow diagram. b. Populate the following table and plot the NPW results in a meaningful plot. (Make sure you label your axis, and your plot should contain three curves.) c. Make a pricing recommendation as a function of sales. You would like to make a minimum of $100,000 for your work on this project.
Three different alternatives shown in the table below are being considered by Kal Tech Engineering systems. Assume that alternatives X and Z are replaced at the end of their lives. Data Alternative X Alternative Y Alternative Z Initial Cost $6,000 $1,000 $1,500 Uniform Annual Benefits $810 $125 $ 230 Useful Life in Years 20 ∞ (infinity) 10 MARR (Interest Rate) 12% Refer to the data above. The most desirable alternative is ________. Group of answer choices Do nothing Alt. Z Alt. Y Alt. X Quiz saved at 11:56pm Submit Quiz
Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $20,500 per year. An emission reduction filter will cost $75,000 and have an expected life of 5 years. Carlisle's MARR is 10%/year. Part a What is the future worth of this investment? $ Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is £10.
Calculate the capitalized cost of a project that has an initial cost of P3500000 and an additional investment cost of P950000 at the end of every 8 years. The annual operating cost will be P120000 at the end of every year for the first 5 years and P150000 thereafter. In addition there is expected to be a replacement cost of P350000 every 12 years. The interest rate is 12%. Also show the cash flow diagram.
-Two alternatives are shown in the table below. If the MARR is 20%, which alte mative should be selected and why? Remember to show your work!) (Estimated Rasponse Times for Awarage Student: 7 minutes) Year C C Altemative A $3.000) $1,200 $1,300 $1,300 Alemative B $1.500 $1.500 $1,500 a. Choose Altemative B because the incremental rate of retum is 18.22%, which is less than the MARR, therefore the more expensive aftemative should be selected b. Choose Altemative B because it has an IRR of 11.25% where as Alternative A only has an IRR of 9.70% c. Choose Altemative A because the incremental rate of retum is 1.54%, which is less than the MARR, therefore the cheaper alternative should be selected d. Choose Altemative A because the incremental rate of retum is 18.22%, which is less than the MARR, therefore the cheaper altemative should be selected e. Choose Altemative B because the incremental rate of retum is 1.54%, which is less than the MARR, therefore the more expensive altemative should…
4-10 Improvement and expansion of a production facility are being given economic consideration. At the present time (Alternative A), profits are running at $450,000 per year. Assume a washout in operating profit in cach of years one through 10 so they will remain constant at $450,000 per year. Two mutually exclusive alternatives for improve- ment and improvement combined with expansion are being consid- ered with projected costs and revenues as shown on the following time diagrams with all dollar values expressed in thousands of dollars. 450 450 450 A) ..... .... 0. 2 10 ... -800 700 700 700 B) 2 ... 10 850 -900 C) -1,300 1,050 1,050 1 ..... 10 1) For a minimum rate of return of 15% determine whether the present project "A," improvement project "B," or improvement plus expansion project "C" is economically best using ROR, NPV, and PVR. 2) Then increase the minimum ROR to 25% from 15% over the entire 10-year evaluation life and re-evaluate the alternatives using both ROR and NPV…
11-8. The Ford Motor Company is considering three mutually exclusive electronic stability control systems for protection against rollover of its automobiles. The investment (study) period is four years, and MARR is 12% per year. Data for the fixture costs of the systems are as follows. Alternatives В Annual savings MV (after 4 years) Capital investment $12,000 $15,800 $8,000 $4,000 $5,200 $3,000 $3,500 $1,500 $3,000 IRR 19.2% 18% 23% Plot the AW of each alternative against MARR as the MARR varies across this range: 4%, 8%, 12%, 16%, and 20%. What can you generalize about the range of the MARR for which each alternative is preferred? (11.2)
A $45,000 investment in a new conveyor system is projected to improve throughput and increasing revenue by $14,000 per year for five years The conveyor will have an estimated market value of $4,000 at the end of five years. Using an MARR = 12% per year, what is the FW? $-19,329.40 $13,635.70 $16,998.90 none of the above W ?
2. 2. The data below are estimated for the project study of a certain business investment. If money is worth 10%, which of the project is more desirable, using Present Worth method and determine the difference in profit from each project study. For A, the initial investment is P3,500, with annual revenue of P1,900. Annual disbursement amounts to P645 with no salvage value at the end of its life which is 4 years. For B, the initial investment is P5,000, with annual revenue of P2500. Annual disbursement is P1383 with no salvage value at the end of its life which is 8 years.
• Smalltown, PA currently has a $38,000/year contract with a private company to transport students to their school and back. Smalltown can buy a bus for $40,000 that will be adequate for the next 5 years. Operating and maintenance costs are estimated to be $25,000 per year. At the end of 5 years, the bus will have an estimated salvage value of $5,000. Their MARR is 10%/year. а. What is the Excel or closed form equation (along with the value of relevant parameters) to determine this investment's internal rate of return?