**Instructions for Rate of Return (ROR) Analysis**For the five alternatives described in the table, determine which project(s) should be selected based on the Rate of Return (ROR) analysis method, considering a Minimum Attractive Rate of Return (MARR) of 15%.### 1. If they are independent: - Specify the projects that meet the criteria: - _______________ - _______________ ### 2. If they are mutually exclusive:Follow the steps below based on the comparison with MARR = 15%:#### Step 1:- Exclude alternatives __________ and __________ from the competition.#### Step 2:- ______________ (challenger) VS ______________ (defender) - Incremental Rate of Return ($\Delta i^*$) = __________ - Select: _______________#### Step 3:- ______________ (new challenger) VS ______________ (new defender) - Incremental Rate of Return ($\Delta i^*$) = __________### Table: Project Alternatives and Rate of Return| Alternative | Initial Investment, $ | Overall ROR vs DN, % | Incremental Rate of Return, % ||-------------|------------------------|----------------------|-------------------------------|| A | -25,000 | 9.6 | — || B | -35,000 | 15.1 | 27.3, 9.4, 35.3, 25.0 || C | -40,000 | 13.4 | —, 0, 38.5, 24.4 || D | -60,000 | 25.4 | —, —, 46.5, 27.3 || E | -75,000 | 20.2 | —, —, —, 6.8 |**Graph/Diagram Explanation**:- The table is divided into columns for each alternative, detailing the initial investment required, the overall Rate of Return compared to the do-nothing (DN) scenario, and the incremental Rate of Return for comparisons between alternatives. **Decision-Making Process Using Incremental Rate of Return Analysis****Instructions:**For mutually exclusive alternatives, perform the following steps based on comparisons with a Minimum Acceptable Rate of Return (MARR) of 15%.**Step 1:**- Exclude alternatives $ \_\_\_\_\_\_\_ $ and $ \_\_\_\_\_\_\_ $ from competition**Step 2:**- $ \_\_\_\_\_\_\_ $ (challenger) VS $ \_\_\_\_\_\_\_ $ (defender)- Calculate $ \Delta i^* = \_\_\_\_\_\_\_ $- Select $ \_\_\_\_\_\_\_ $**Step 3:**- $ \_\_\_\_\_\_\_ $ (new challenger) VS $ \_\_\_\_\_\_\_ $ (new defender)- Calculate $ \Delta i^* = \_\_\_\_\_\_\_ $- Select $ \_\_\_\_\_\_\_ $**Data Table for Alternatives:**| Alternative | Initial Investment ($) | Overall ROR (%) ||-------------|------------------------|-----------------|| A | 25,000 | 9.6 || B | 35,000 | 15.1 || C | 40,000 | 13.4 || D | 60,000 | 25.4 || E | 75,000 | 20.2 |**Incremental Rate of Return Analysis:**| Incremental Rate of Return (%) | A | C | D | E ||--------------------------------|-----|-----|-----|-----|| A | \| | 27.3| 9.4 | 35.3| 25.0 || C | \| | 38.5| 24.4| || D | \| | | 46.5| 27.3|| E | \| | | | 6.8 |**Explanation:**The table compares different investment alternatives, their initial investments, and their overall rates of return (ROR). It also shows incremental rates of return as comparisons are made between different alternatives. This information assists in selecting the

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For the five altematives described in the table on right.Note: the third column is ROR of each project (i"), while incremental ROR are Ai* values. At MARR of 15%, which project or projects should be selected, using ROR analysis method ? 1- if they are independents:

For the five altematives described in the table on right.Note: the third column is ROR of each project (i"), while incremental ROR are Ai* values. At MARR of 15%, which project or projects should be selected, using ROR analysis method ? 1- if they are independents:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the following two mutually exclusive projects being considered by an agency. The agency's MARR is 4% per year and the projects have a service life of 5 years Project 1 $14,300 $3,743 $2,363 Answer the following questions Initial cost Annual revenues Present Worth (PW) a. Based on the PW, the project that is more economical is Project(Enter the project number) b. Calculate the IRR of each alternative (use the trial-and-error method) The IRR of Project 1 is % (Round to the nearest one decimal place) The IRR of Project 2 is% (Round to the nearest one decimal place) c. Perform the incremental IRR analysis to determine the project that is more economical Incremental IRR-% (Round to the dearest one decimal place). Therefore, based on the incremental IRR, Project is more economical d. Do the two methods produce the same recomendation for the most economical project? OA. Yes B. No Project 2 $21.500 $5,399 $2,535 e. IMPORTANT Note from this example that a higher IRR for an individual…
f d h 0 he 6.27 For each of the following scenarios, state whether an incremental investment analysis is required to select an alternative and state why or why not. As- sume that alternative Y requires a larger initial in- vestment than alternative X and that the MARR is 20% per year. a. X has i* = per year. b. X has i*= 22% per year, and Y has i* = 20% 19% per year, and Y has i* = 21% per year. c. X has i* = 16% per year, and Y has i* = 19% per year. d. X has i* = 25% per year, and Y has i* = 23% per year. e. X has i* = 20% per year, and Y has i* = 22% per year.
1 - Assuming an interest rate of 3% per year (effective), calculate the feasibility of each option. You can use either Present Worth Analysis or Equivalent Uniform Worth Analysis. In this part, your calculation should be done without the use of Excel. Show your equations and the results. 2 - Using linear interpolation, calculate the rate of return for each option. Here, your calculation should be implemented using Excel. 3 - Assuming that the initial equipment can be depreciated over the course of 20 years and usingDouble Decline Balance Depreciation, calculate the depreciation schedule for the equipment. 4- Assume a state income tax of 5%. Calculate the after-tax cashflow for each option assuming the depreciation used. Use only the depreciation on question 2.
The tree diagram in figure below describes the uncertain cash flows for an engineering project. The analysis period is two years, and MARR = 12% per year. Based on this information, a. What are the E(PW), V(PW), and SD(PW) of the project? b. What is the probability that PW≥ 0? Click the icon to view the tree diagram. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. a. Calculate the E(PW), V(PW), and SD(PW) of the project. E(PW) = $ (Round to the nearest dollar.) More Info 0 -$29,000 0.2 0.6 0.2 Time Period 1 $5,500 $11,000 $17,500 0.1 0.1 0.8 0.1 0.7 0.2 0.2 0.3 0.5 2 $17,200 $20,200 $24,800 $20,100 $24,600 $29.300 $21,900 $28,000 $31,100 C Q - X More Info N 1 2 3 4 5 Discrete Compounding; i = 12% Compound Amount Factor To Find F Given A FIA 1.0000 2.1200 3.3744 4.7793 6.3528 Single Payment Compound Amount Factor To Find F Given P F/P 1.1200 1.2544 1.4049 1.5735 1.7623 Present Worth Factor To Find P Given F P/F 0.8929 0.7972…
6.1 A dam is proposed on a stretch of wild river, a river that is currently used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years, after which its reservoir will be full of sediment and the dam will need to be removed. The following are characteristics of the dam: Initial Cost: $100,000,000 Electricity produced: 100,000 MWh per year at $100/Mwh Cost of decommissioning dam: $10,000,000 Value of recreation lost: $5,000,000 per year Assume that costs and benefits accrue at the end of each period. a. If the social discount rate is 3% per year, is the dam a good idea? b. If the social discount rate is 10% per year, is the dam a good idea? c. Calculate the "cutoff" discount rate, c, such that the dam is a good idea for discount rates rc and a bad idea for discount rates r > c.
You have been asked to perform an economic evaluation of two projects and recommend one of them for implementation. The project parameters are as follows: Project A Project B Discount Rate 4.0% 4.0% Your analysis concludes that: Project Cost $1,000,000 $750,000 Project Life (yrs) 10 15 Elec. Savings Elec. Cost (kWh/yr) ($/kWh) 800,000 600,000 O Project A is preferable, but Project B also has attractive performance. O Project B is preferable, but Project A also has attractive performance. O Project B is preferable and Project A results in a net loss. O Project A is preferable and Project B results in a net loss. $0.12 $0.12 Annual Cost Escalation Rate 1.5% 1.5%
Ginger has agreed to a lawsuit settlement of $700,000 with a certain pharmaceutical company. The company has offered options to pay her the awarded money. After discussing the terms with the company, she expects that the company should be able to pay her back within 3-5 years Ginger has developed the following estimates Option A B-Pessimistic CMost likely D.Optimistic Delay period 5 years 4 years 3years Cash Flow Estimates, S $700.000 now $151.000 per year for every year the payment is delayed $173.200 per year for every year the payment is delayed $234.500 per year for every year the payment is delayed If her personal MARR is 15% per year, what is the present worth of each of her options? Option A-PW: Option B- PW: Option C- PW: Option D PW: 2. With respect to her personal MARR, which option should she select?
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(c) If A and B are mutually exclusive projects, which project would you select based on the rate of return on incremental investment at MARR = 10%? The rate of return on the incremental investment is %. (Round to one decimal place.) Which project would you select based on the rate of return on incremental investment at MARR = 10%? Choose the correct answer below. Project A O Project B 1: More Info FOT23 n 0 1 Net Cash Flow Project A - $145,000 35,000 35,000 140,000 Project B - $130,000 25,000 25,000 150,000
The estimated negative cash flows for three design alternatives are shown below. The MARR is 10% per year and the study period is four years. Which alternative is best based on the IRR method? Doing nothing is not an option. Capital investment Annual expenses OA. Alternative B OB. Alternative C OC. Alternative A EOY 0 1-4 A $85,700 8,500 Alternative B $64,500 Which alternative would you choose as a base one? Choose the correct answer below. 15,150 C $71,900 12,450
You are faced with making a decision on a large capital investment proposal. The capital investment amount is $640,000. Estimated annual revenue at the end of each year in the eight year study period is $180,000. The estimated annual year-end expenses are $42,000 starting in year one. These expenses begin decreasing by $4,000 per year at the end of year four and continue decreasing through the end of year eight. Assuming a $20,000 market value at the end of year eight and a MARR = = =12% per year, answer the following questions. a). Using AW, determine whether this proposal is acceptable.
The MARR is 15%. Three alternatives are available and the associated cash flow is as follow: Year First Cost A B C $1,700 $2,100 $3,750 Annual Benefit Useful Life 2 $1,000 $1,000 $1,000 3 6 Answer the following in this format: 1.23 1. The payback period for Alternative A is 2. The payback period for Alternative B is 3. The payback period for Alternative C is Based on Payback period analysis, Alternative should be selected. (Enter only the letter)