There are two mutually exclusive projects Alpha and Beta. The Alpha alternative has a life of 3 years, an initial cost of $11,000, an expected annual income of $7,000, and a salvage value after 3 years of $2,000. The Beta alternative has a life of 5 years and is expected to have an annual income of $7,000, but the initial cost will be $17,000, with a salvage value of $3,000. A MARR of 9% will be used for the analysis. Solve: USING EXCEL (show the forumla) 1) Which project would be chosen using the Truncated Method and the VAE? 2) Calculate the discounted payback period of the second. 3) Index of profitability of the first 4) The IRR of the first.
There are two mutually exclusive projects Alpha and Beta. The Alpha alternative has a life of 3 years, an initial cost of $11,000, an expected annual income of $7,000, and a salvage value after 3 years of $2,000. The Beta alternative has a life of 5 years and is expected to have an annual income of $7,000, but the initial cost will be $17,000, with a salvage value of $3,000. A MARR of 9% will be used for the analysis. Solve: USING EXCEL (show the forumla) 1) Which project would be chosen using the Truncated Method and the VAE? 2) Calculate the discounted payback period of the second. 3) Index of profitability of the first 4) The IRR of the first.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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There are two mutually exclusive projects Alpha and Beta. The Alpha alternative has a life of 3 years, an initial cost of $11,000, an expected annual income of $7,000, and a salvage value after 3 years of $2,000. The Beta alternative has a life of 5 years and is expected to have an annual income of $7,000, but the initial cost will be $17,000, with a salvage value of $3,000. A MARR of 9% will be used for the analysis.
Solve: USING EXCEL (show the forumla)
1) Which project would be chosen using the Truncated Method and the VAE?
2) Calculate the discounted payback period of the second.
3) Index of profitability of the first
4) The
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Step 1: Set up the table for both projects with relevant cash flows.
VIEWStep 2: Calculate the Net Present Value (NPV) for each project using the MARR of 9%.
VIEWStep 3: Compare the NPV values to decide which project to choose using the Truncated Method and the VAE.
VIEWStep 4: Calculate the discounted payback period for the second project (Beta).
VIEWStep 5: Calculate the Index of Profitability for the first project (Alpha).
VIEWStep 6: Calculate the Internal Rate of Return (IRR) for the first project (Alpha).
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