You are evaluating three equipment. The cash flows are shown below. A MARR of 3% was setup and your company wants to earn as much money as possible, if MARR is achieved. A B C Year Net CFBT Net CFBT Net CFBT 0 -97,500 -130,000 -170,000 1 22,750 31,200 32,500 2 -6000 -35,750 -16,000 3 29,250 40,300 26,000 4 32,500 44,850 35,100 5 35,750 55,400 52,000 Part a) Determine which alternative should be recommended by using incrementalrate of return (Δi*). Determine if do-nothing (DN) is an option and take it into consideration in youranalysis if needed. Make sure to justify your answer with both calculations and text. Part b) You were holding discussions with the bank and you were able to secure areinvestment interest rate of 10% per year and the bank agreed to lend you money at 8% per year. Withthis information in mind, you determined how the actual reinvestment rate and borrowing rateaffect the rate of return for the selected project from 2, part a). Use MIRR method to determine if thealternative chosen from 2, part a) will make MARR based on the external rate of return that youcalculated. Make sure to show your work and justify your answer with both calculations and text.
You are evaluating three equipment. The cash flows are shown below. A MARR of 3% was setup and your company wants to earn as much money as possible, if MARR is achieved.
| A | B | C | |
| Year | Net CFBT | Net CFBT | Net CFBT |
| 0 | -97,500 | -130,000 | -170,000 |
| 1 | 22,750 | 31,200 | 32,500 |
| 2 | -6000 | -35,750 | -16,000 |
| 3 | 29,250 | 40,300 | 26,000 |
| 4 | 32,500 | 44,850 | 35,100 |
| 5 | 35,750 | 55,400 | 52,000 |
Part a) Determine which alternative should be recommended by using incremental
rate of return (Δi*). Determine if do-nothing (DN) is an option and take it into consideration in your
analysis if needed. Make sure to justify your answer with both calculations and text.
Part b) You were holding discussions with the bank and you were able to secure a
reinvestment interest rate of 10% per year and the bank agreed to lend you money at 8% per year. With
this information in mind, you determined how the actual reinvestment rate and borrowing rate
affect the rate of return for the selected project from 2, part a). Use MIRR method to determine if the
alternative chosen from 2, part a) will make MARR based on the external rate of return that you
calculated. Make sure to show your work and justify your answer with both calculations and text.
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