please solve with formulas like (F/P, 5% , n)not with the excell.A.3. A sanitary sewer can be constructed using either a deep cut or a lift station, with the follow-ing costs estimnated. Using incremental rate of return analysis techniques, determine whichalternative should be selected for an MARR of 7 percent.Deep-cutalternativeLift-stationalternative235,00015,0001,800275,000Installation cost of pipe ($)Installation cost of lift station ($)Annual maintenance costs ($)Expected life (yr)4004040(Ans. IROR = 4.73% < 7%; select lift station)

Answered: please solve with formulas like (F/P,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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please solve with formulas like (F/P, 5% , n)
not with the excell.
A.3. A sanitary sewer can be constructed using either a deep cut or a lift station, with the follow-
ing costs estimnated. Using incremental rate of return analysis techniques, determine which
alternative should be selected for an MARR of 7 percent.
Deep-cut
alternative
Lift-station
alternative
235,000
15,000
1,800
275,000
Installation cost of pipe ($)
Installation cost of lift station ($)
Annual maintenance costs ($)
Expected life (yr)
400
40
40
(Ans. IROR = 4.73% < 7%; select lift station)

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Step 1

Introduction:

The minimum acceptable rate of return, also known as the hurdle rate, is the lowest rate of return that the project must achieve in order to cover the costs of the investment. Projects are also evaluated by discounting future cash flows to the present by the hurdle rate in order to obtain the net present value (NPV), which measures the difference between the PV (present value) of cash inflows and the PV (present value) of cash outflows.

In general, the hurdle rate is equal to the company's costs of capital, which are a mix of the cost of stock and the cost of debt. Managers generally raise the hurdle rate for riskier projects or when the organisation is assessing various investment alternatives.

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