10. An elective project is currently under review. The first alternative requires an initial investment of $60,000 for equipment. The annual revenues and expenses are expected to be $36,000 and $20,000 each year, respectively, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The PW of this alternative is $17,587. The second alternative requires an initial investment of $116,000 for equipment. The annual revenues and expenses are expected to be $38,000 and $10,000 each year, respectively, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. Find the preferred alternative using PW analysis, assuming a MARR of 10%. (Find the PW directly - do not convert from either FW or AW.) Justify your conclusion.

10. An elective project is currently under review. The first alternative requires an initial investment of $60,000 for equipment. The annual revenues and expenses are expected to be $36,000 and $20,000 each year, respectively, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The PW of this alternative is $17,587. The second alternative requires an initial investment of $116,000 for equipment. The annual revenues and expenses are expected to be $38,000 and $10,000 each year, respectively, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. Find the preferred alternative using PW analysis, assuming a MARR of 10%. (Find the PW directly - do not convert from either FW or AW.) Justify your conclusion.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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6. An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. A second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The IRR of this alternative is 18.69%. Determine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your recommendation, based on this method.
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