A computer call center is going to replace all of its incandescent lamps with more energy efficient fluorescent lighting fixtures. The total energy savings are estimated to be $2,084 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,500. The study period is four years, and terminal market values for the fixtures are negligible. a. What is the IRR of this investment? b. What is the simple payback period of the investment? c. Is there a conflict in the answers to Parts (a) and (b)? List your assumptions. d. The simple payback "rate of return" is 1/0 a. The IRR of the investment is%. (Round to one decimal place.) b. The simple payback period of the investment is years. (Round up to the next whole number) c. Select all the correct assumptions below. A. The value of 0 may indicate a poor project in terms of liquidity. B. The value of 0 may indicate the best project in terms of liquidity. C. The IRR will signal an acceptable (profitable) project if the MARR is less than 30.2% D. The IRR will signal an acceptable (profitable) project if the MARR is higher than 30.2%. d. The simple payback "rate of return", 1/6, is%. (Round to one decimal place.)
A computer call center is going to replace all of its incandescent lamps with more energy efficient fluorescent lighting fixtures. The total energy savings are estimated to be $2,084 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,500. The study period is four years, and terminal market values for the fixtures are negligible. a. What is the IRR of this investment? b. What is the simple payback period of the investment? c. Is there a conflict in the answers to Parts (a) and (b)? List your assumptions. d. The simple payback "rate of return" is 1/0 a. The IRR of the investment is%. (Round to one decimal place.) b. The simple payback period of the investment is years. (Round up to the next whole number) c. Select all the correct assumptions below. A. The value of 0 may indicate a poor project in terms of liquidity. B. The value of 0 may indicate the best project in terms of liquidity. C. The IRR will signal an acceptable (profitable) project if the MARR is less than 30.2% D. The IRR will signal an acceptable (profitable) project if the MARR is higher than 30.2%. d. The simple payback "rate of return", 1/6, is%. (Round to one decimal place.)
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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Transcribed Image Text:### Investment Analysis of Lighting Fixtures Replacement
A computer call center is planning to replace all of its incandescent lamps with more energy-efficient fluorescent lighting fixtures. The expected annual energy savings are estimated to be $2,084. The cost of purchasing and installing these fluorescent fixtures is $4,500. The study period is four years, and terminal market values for the fixtures are negligible.
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#### Problem Statement
**a. What is the IRR of this investment?**
**b. What is the simple payback period of the investment?**
**c. Is there a conflict in the answers to Parts (a) and (b)? List your assumptions.**
**d. The simple payback "rate of return" is \( \frac{1}{\theta} \)**
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### Questions and Answer Format
1. **a. The IRR of the investment is \_\_\_%. (Round to one decimal place.)**
2. **b. The simple payback period of the investment is \_\_\_ years. (Round up to the next whole number.)**
3. **c. Select all the correct assumptions below:**
- A. The value of \( \theta \) may indicate a poor project in terms of liquidity.
- B. The value of \( \theta \) may indicate the best project in terms of liquidity.
- C. The IRR will signal an acceptable (profitable) project if the MARR is less than 30.2%.
- D. The IRR will signal an acceptable (profitable) project if the MARR is higher than 30.2%.
4. **d. The simple payback “rate of return”, \( \frac{1}{\theta} \), is \_\_\_%. (Round to one decimal place.)**
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### Concepts Explanation
- **Internal Rate of Return (IRR):** The IRR is the discount rate that makes the net present value (NPV) of all cash flows equal to zero. It is used to evaluate the attractiveness of a project or investment.
- **Simple Payback Period:** The payback period is the time it takes for an investment to generate an amount of money equal to the initial investment cost. It is calculated by dividing the initial investment by the annual savings.
- **Conflict in Results:** There might be a conflict in the results obtained from the IRR and the simple payback period. This could be due
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