Balfe Ltd is a technology company and is considering a number of different capital projects. An initial outlay of €120,000 is payable immediately, to purchase machines with a life of three years. There are two investment options - Project A or Project B - which will yield cash-flows over three years as follows: Project A Project B Projected Cash inflows Projected Cash inflows Year 1 30,000 73,000 Year 2 50, 000 55,000 Year 3 80,000 61,000 The company has a cost of capital of 11%. Required: a) For Project A and Project B calculate: i. Net present Value (NPV) ii. Discounted Payback iii. Accounting Rate of Return (ARR) iv. Estimated Internal Rate of Return (IRR) b) Critically evaluate which project should be undertaken.

Balfe Ltd is a technology company and is considering a number of different capital projects. An initial outlay of €120,000 is payable immediately, to purchase machines with a life of three years. There are two investment options - Project A or Project B - which will yield cash-flows over three years as follows: Project A Project B Projected Cash inflows Projected Cash inflows Year 1 30,000 73,000 Year 2 50, 000 55,000 Year 3 80,000 61,000 The company has a cost of capital of 11%. Required: a) For Project A and Project B calculate: i. Net present Value (NPV) ii. Discounted Payback iii. Accounting Rate of Return (ARR) iv. Estimated Internal Rate of Return (IRR) b) Critically evaluate which project should be undertaken.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Future worth and annual cash flow analysis often require far less computation than rate of return analysis Select one: True False
The Philippine Institute of Industrial Engineers (PIIE) is planning to put up its own building. Two proposals being considered are: A: The construction of the building now to cost Php 400,000 B: The construction of a smaller building now to cost Php 300,000 and at the end of 5 years to be added to cost Php 120,000 By how much is proposal A more economical than proposalB if interest is to be neglected? Answer is Php Blank 1
One share of Harris, Andrews, and Tatum (HAT) Enterprises was purchased 5 years ago for $10.89. Dividends of 5¢ were paid each quarter over the 5-year period of ownership. The share is sold today for $18.31. Determine the effective rate of return on the stock.
3. A corporate jet costs $1,350,000 and will incur $200,000 per year in fixed costs (maintenance, licenses, insurance, and hangar rental) and $277 per hour in variable costs (fuel, pilot expense, etc.). The jet will be operated for 1,200 hours per year for five years and then sold for $650,000. The MARR is 15% per year. (a) Determine the capital recovery cost of the jet. (b) What is the EUAC of the jet?
X1 = 18% X2 = 600 *Do not use excel to solve the problem, use the equations and explain each step in details. *Draw a cash flow diagram.
answer fast
Avian Air Cargo is considering an investment of $10,000,000 with life expectancy of 10 years and annual operating cost of $400,000 in Year 1 with an $50,000 per year starting in Year 2 through the life of the project. Avian Air Cargo anticipates a revenue stream of $2,500,000 per year for 20 years I 12%, what is the rate of return for this project and is it economically justified? It is NOT economically justified because the rate of return is between 14% and 15%. It IS economically justified because the rate of return is between 10% and 11%. It is NOT economically justified because the rate of return is between 10% and 11%. It IS economically justified because the rate of return is between 14% and 15% of MARR
What is the net present value and IRR on a project costing $1000, providing a net cash flow of $400 per year for 5 years, with a required rate of return of 5%:1 ) NPV-1731, IRR of approximately 18% 2) NPV- 334, IRR of approximately 11% 3) NPV 732, IRR of approximately 28%4) None of the above
(b) Over the past 8 years, PQR Sdn Bhd has placed varying sums of money into a special capital accumulation fund. The company sells compost produced by garbage-to- compost plants in Malaysia and Indonesia. Figure Q2(b) is the cash flow diagram represent the value of funding. RM 1,000 1 2 RM 3,000 3 4 5 Figure Q2(b) 6 F =? 7 8 RM 1,500 Determine the amount in the account (year 8) using an effective interest method with an interest rate of 10% per year, compounded semi-annually
using Microsoft excel create an investment cash-flow diagram that will have a present worth of zero using MARR=12% the study period needs to be exactly 9 years and each year should have at least one unique cash flow that is different from the cash-flows over the other years your answer should contain a table showing the cash-flows for each year and a graphical representation of the cash-flows
Most likely estimates for a project are as follows. Choose the correct choice below. MARR Useful life Initial investment Receipts-Expenses (R-E) Determine whether the statement "This project (based upon the most likely estimates) is profitable." is true or false Click the icon to view the relationship between the PW and the percent change in parameter Click the icon to view the interest and annuity table for discrete compounding when the MARR is 15% per year. O False O True 15% per year 6 years $6,500 $1,800/year am
answer fast