Three mutually exclusive alternatives are being considered for the production equipment at a tissuepaper factory. The estimated cash flows for each alternative are given below. The effective interestrate and Minimum Attractive Rate of Return [MARR] are 6% per year, and 20% per yearrespectively.ParameterCapital InvestmentAnnual RevenuesAnnual ExpensesMarket ValueUseful Life (Years)Equipment A$2,000$3,200$2,100$1005Equipment B$4,200$6,000$4,000$42010Equipment C$7,000$8,000$5,100$60010Conduct an External Rate of Return [ERR] analysis and recommend which equipment alternative,if any, should be selected? Please clearly state all your assumptions. Also, present all cash flowdiagrams in your solution. Adhere to all conventions.

Answer:To conduct an External Rate of Return (ERR) analysis and determine which equipment…

Answered: Three mutually exclusive alternatives…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Acme Tools has four alternatives for an injection molding machine (A, B, C, D) as shown below. MARR is 20%. Use incremental cash flow analysis to determine the economically optimal system. Solve this problem in Excel, copy and paste the Excel model below, and provide an interpretation. A B C D Capital Investment $295,000 $350,000 $310,000 $340,000 Net Annual Revenue $75,000 $90,000 $75,000 $85,000 Residual Value $60,000 $82,000 $96,000 $85,000 Study Period 6 Years 6 Years 6 Years 6 Years
A new highway is to be constructed. Design A calls for a concrete pavement costing $80 per foot with a 20-year life; four paved ditches costing $3 per foot each; and four box culverts every mile, each costing $10,000 and having a 20-year life. Annual maintenance will cost $1,600 per mile; the culverts must be cleaned every five years at a cost of $400 each per mile. Design B calls for a bituminous pavement costing $55 per foot with a 10-year life; four sodded ditches costing $1.40 per foot each; and four pipe culverts every mile, each costing $2,100 and having a 10-year life. The replacement culverts will cost $2,450 each. Annual maintenance will cost $2,600 per mile; the culverts must be cleaned yearly at a cost of $225 each per mile; and the annual ditch maintenance will cost $1.55 per foot per ditch. Compare the two designs on the basis of equivalent worth per mile for a 20-year period. Find the most economical design on the basis of AW and PW if the MARR is 12% per year. Click the…
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Most likely estimates for a project are as follows. MARR 12% per year Useful life 9 years Initial investment $4,000 Receipts - Expenses (R-E) $1,100/year 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 12% per year. (a) Determine whether the statement "An initial investment of $4,600 keeps the investment economical." is true or false. True O False (b) To which variable is the PW most sensitive to? OA. Initial Investment O B. Receipts Expenses OC. Usefule life
Fairmont Industries primarily relies on 100% equity financing to fund projects. A goodopportunity is available that will require $250,000 in capital. The Fairmont owner can supply themoney from personal investments that currently earn an average of 8.5% per year. The annualnet cash flow from the project is estimated at $30,000 for the next 15 years. Alternatively, 60%of the required amount can be borrowed for 15 years at 9% per year. If the MARR is the WACC,determine which plan, if either is better. This is a before-tax analysis
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Future worth and annual cash flow analysis often require far less computation than rate of return analysis Select one: True False
Give typing answer with explanation and conclusion

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