An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The ofit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of e project period is projected to be $22,000. second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, er the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be 4,000. The IRR of this alternative is 18.69%. ermine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your ommendation, based on this method.
An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The ofit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of e project period is projected to be $22,000. second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, er the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be 4,000. The IRR of this alternative is 18.69%. ermine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your ommendation, based on this method.
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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Please write by hand. Not in excell please. NOT IN EXCELL PLEASE.
Transcribed Image Text: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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