Three mutually exclusive alternatives are being considered for the production equipment at a tissue paper factory. The estimated cash flows for each alternative are given below. The effective interest rate and Minimum Attractive Rate of Return [MARR] are 6% per year, and 20% per year respectively. Equipment A Parameter Capital Investment Annual Revenues Annual Expenses Market Value Useful Life (Years) $2,000 $3,200 $2,100 $100 5 Equipment B $4,200 $6,000 $4,000 $420 10 Equipment C $7,000 $8,000 $5,100 $600 10 Conduct 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 flow diagrams in your solution. Adhere to all conventions.
Three mutually exclusive alternatives are being considered for the production equipment at a tissue paper factory. The estimated cash flows for each alternative are given below. The effective interest rate and Minimum Attractive Rate of Return [MARR] are 6% per year, and 20% per year respectively. Equipment A Parameter Capital Investment Annual Revenues Annual Expenses Market Value Useful Life (Years) $2,000 $3,200 $2,100 $100 5 Equipment B $4,200 $6,000 $4,000 $420 10 Equipment C $7,000 $8,000 $5,100 $600 10 Conduct 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 flow diagrams in your solution. Adhere to all conventions.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Three mutually exclusive alternatives are being considered for the production equipment at a tissue
paper factory. The estimated cash flows for each alternative are given below. The effective interest
rate and Minimum Attractive Rate of Return [MARR] are 6% per year, and 20% per year
respectively.
Equipment A
Parameter
Capital Investment
Annual Revenues
Annual Expenses
Market Value
Useful Life (Years)
$2,000
$3,200
$2,100
$100
5
Equipment B
$4,200
$6,000
$4,000
$420
10
Equipment C
$7,000
$8,000
$5,100
$600
10
Conduct 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 flow
diagrams in your solution. Adhere to all conventions.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe8e6af72-758f-40d3-84b8-be5a1d275500%2F977471f6-2e29-4ce0-9f8b-50223812ac0f%2F5yxw54j_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Three mutually exclusive alternatives are being considered for the production equipment at a tissue
paper factory. The estimated cash flows for each alternative are given below. The effective interest
rate and Minimum Attractive Rate of Return [MARR] are 6% per year, and 20% per year
respectively.
Equipment A
Parameter
Capital Investment
Annual Revenues
Annual Expenses
Market Value
Useful Life (Years)
$2,000
$3,200
$2,100
$100
5
Equipment B
$4,200
$6,000
$4,000
$420
10
Equipment C
$7,000
$8,000
$5,100
$600
10
Conduct 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 flow
diagrams in your solution. Adhere to all conventions.
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