A company is building a powerplant. It is considering three alternatives. Based on Benefit to cost ration, determine which project should be chosen. The estimated benefits and costs are as follows B C Initial Investment 100 160 220 55 Annual Recurring benefits Annual Recurring costs Salvage value Project life = 40 years Int rate = 5% 20 25 8 18 25 10 8. 22 Select Project = Reason: %3D

A company is building a powerplant. It is considering three alternatives. Based on Benefit to cost ration, determine which project should be chosen. The estimated benefits and costs are as follows B C Initial Investment 100 160 220 55 Annual Recurring benefits Annual Recurring costs Salvage value Project life = 40 years Int rate = 5% 20 25 8 18 25 10 8. 22 Select Project = Reason: %3D

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4PA: Net present value method, internal rate of return method, and analysis for a service company The...

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Question

Problem 2. Based on benefit to cost ratio, determine which project should be chosen. Please work out in excel spreadsheet.

600
7
-150
Rate of Return =
Prob. 2
A company is building a powerplant. It is considering three
alternatives. Based on Benefit to cost ration, determine which
project should be chosen. The estimated benefits and costs are as
follows
B
C
Initial Investment
100
160
220
55
Annual Recurring benefits
Annual Recurring costs
Salvage value
Project life = 40 years
20
25
8
18
25
10
8.
22
Select Project =
Int rate = 5%
Reason:
Prob. 3
A company is buying a machine that will save them in labor cost. It
also has some yearly maintenance costs. See the details below.
Calculate the PW and IRR of this transaction. At the given MARR, is
this a good purchase?
15000
Initial Investment
Annual Labor savings
Annual maintenance costs
8000
2500
2000
Salvage value
N = 6 yrs
PW =
IRR =
MARR = 15%
Good/Bad
étv
D00
&

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