A company with a MARR = 5% is considering the two options shown. OPTION 1 OPTION 2 1st Cost Uniform Annual Benefits Life $750,000 $130,000 8 years $540,000 $95,000 8 years The Internal Rate of Return for OPTION 2 is: a. between 7% and 8% b. between 8% and 9% c. between 9% and 10% d. between 10% and 12%

A company with a MARR = 5% is considering the two options shown. OPTION 1 OPTION 2 1st Cost Uniform Annual Benefits Life $750,000 $130,000 8 years $540,000 $95,000 8 years The Internal Rate of Return for OPTION 2 is: a. between 7% and 8% b. between 8% and 9% c. between 9% and 10% d. between 10% and 12%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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D-74 Your company is considering two alternatives: Alt. I Alt. II First cost $42,500 $70,000 Annual maintenance 6,000 4,000 Annual savings if implemented 18,500 20,000 Salvage value 12,000 25,000 Useful life of alternative 3 years 6 years What is the annual dollar advantage of Alt. II over Alt. I at an interest rate of 15%? (a) Alt. II has no annual advantage over Alt I. (b) $3020 (c) $3500 (d) $7436
Two mutually exclusive alternatives are being considered. The MARR is 15% per year. General inflation is 5.5%/year. Based on the data below, performan appropriate analysis to select the most economical alternative. State your assumptions.
1
1. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure below. (0.6) Introduce New Product $200,000 profit per year for six years, starting at EOY 3 -$1,000,000 at ΕΟΥ 2 (0.4) $280,000 profit per year for six years, starting at ΕΟΥ Year 0 $0 profit/yr. for 8 years Do Nothing
out of question A company is considering a project that requires an initial cost of $8,000. The project will great dea net cash inflows of $100 in year one, $700 in year two, $6,000 in year three, $11,000 inyear four and $1 in year five. What is the NPV using 4% as the discount rate? NOTE: Enter amounts rounded to two decimals (e.g., 78.76 or 40.00) Net Cash Inflow Year 0 2 3 4 5 $100 $700 $6,000 $11,000 $12,000 NPV Total S $ $
A company epects the cost of ts product parts to increase by 8℅ per year begnning 4 years from now theough to year 10 The cost in years 1-3 is AED 600 and the interest rate is 12% per year 1) Calculate the total present worth in year-02) Calculate the future worth in year-10 option a AED 21361.88b AED 4032.74C AED 3786.61d AED 4400. 66e AED 12524. 89f AED 6878.06
Question No. r The following information is provided for five mutually exclusive alternatives that have 20-year useful lives. If the minimum attractive rate of return is 6%, which alternative should be selected using IROR Method? Alternatives B Cost 4,000 2,000 6,000 1,000 9,000 Uniform Annual Benefit 639 410 761 117 785 IROR 15% 20% 11% 10% 6% IROR (B-D) IROR (A-D) IROR (A-B) IROR (C-B) IROR (C-A) IROR (E-C) IROR (E-A) -5% 29% 18% 10% 9% 2% 14%
Please show working Someone promises to pay you $1,000 in years 5, 10 and 15 for a total of $3,000. Assume your required return is 8%. a. what is the duration of this promise to pay you $3,000 over 15 years? b. what's the convexity? c. using the duration estimate alone, what is the estimated percentage price change in t=0 value if rates are expected to increase 2%?
. Year End Cash Flow Alternative A Alternative B 0 -1,000 600 1 600 500 2 600 -2,000 3 600 400 4 600 200 5 -2,100 -1,000 6 700 1,386 a) Solve for the Net Present Value of the alternatives A and B using interest rates from 0% upward b) what are the rate of return of the two alternatives c) If your MARR is 8 percent, which alternatives would you select? Comment briefly on your results. What are some problems associated with the ROR method?
Hiren Add explanation
#3 HE Year Project A Project B 0 -$20,000 -$23,000 1 2 3 15,200 5,900 2,100 14,300 8.100 7,100 Suppose the company uses the NPV rule to rank these two projects. Which project should be chosen if the appropriate discount rate is 15 percent?
2. In the figure below, Alternative C has a discounted payback period of approximately: years $50,000 S0 -550,000 -$100,000 -S150,000 -$200,000 A B -$250,000 E -5300,000 -$350,000 -$400,000 -$450,000 Investment Year Alternative A Altemative B Alternative C True or False 3. In the same figure above, Alternative C is the most profitable alternative at the end of the planning horizon 4. In the cash flow approach, I would be losing money if I don't sell the "defender" equipment

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