Chapter 8, Problem 19P

To determine

i.

Choice Table.

Answer to Problem 19P

Deluxe is profitable with positive NPW between	0% to 14%
Regular is profitable with positive NPV between	0% to 21%
Economy is profitable with positive NPV between	0% to 24%

Explanation of Solution

Given:

	Deluxe	Regular	Economy
First Cost	$220,000	$125,000	$75,000
Useful Life	5	6	7
Salvage Value	16000	6900	3000

Calculation:

Year	Prticulars	Deluxe	Regular	Economy	Incremental = Regular-Economy	Incremental = Deluxe-Regular
0	First Cost	($220,000)	($125,000)	($75,000)	($50,000)	($95,000)
1	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
3	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
4	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
5	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
6	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
7	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
8	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
9	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
10	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
11	Annual Cost- Operating Cost	$41,000	$30,000	$20,000	$10,000	$11,000
12	Annual Benefit-Operating Cost+Salvage Value	$57,000	$36,900	$23,000	$16,900	$20,100
	Incremental Rate of return	16.52%	5.32%
	NPV of incremental cash flow at 15% MARR	$3,175.40	($35,473.19)

Interest Rate	NPV of Deluxe	NPV of Regular	NPV of Economy
0%	$231,000.00	$211,900.00	$148,000.00
1%	$205,072.76	$192,213.48	$135,041.54
2%	$181,260.77	$174,154.86	$123,149.75
3%	$159,357.59	$157,563.43	$112,219.75
4%	$139,179.55	$142,296.41	$102,158.28
5%	$120,562.98	$128,226.71	$92,882.32
6%	$103,361.86	$115,241.07	$84,317.85
7%	$571,366.62	$103,238.37	$76,398.77
8%	$72,697.53	($90,833.33)	$69,065.93
9%	$59,012.81	$81,829.69	$62,266.41
10%	$46,297.50	$72,270.24	$55,952.70
11%	$34,467.13	$63,384.71	$50,082.16
12%	$23,445.66	$55,114.56	$44,616.41
13%	$13,164.59	$47,407.05	$39,520.92
14%	$3,562.05	$40,214.65	$34,764.51
15%	($5,417.81)	$33,494.46	$30,319.07
16%	($13,825.58)	$27,207.71	$26,159.14
17%	($21,707.05)	($93,461.54)	$22,261.70
18%	($29,103.78)	$15,797.40	$18,605.86
19%	($36,053.50)	$10,613.20	$15,172.69
20%	($42,590.54)	$5,740.46	$11,944.97
21%	($48,746.12)	$1,155.36	$8,907.02
22%	($54,548.72)	($3,163.82)	$6,044.58
23%	($60,024.33)	($7,236.86)	$3,344.64
24%	($65,196.69)	($11,081.83)	$795.31
25%	($70,087.49)	($14,715.22)	($1,614.25)
26%	($74,716.63)	($18,152.13)	($3,893.99)
27%	($79,102.31)	($21,406.38)	($6,053.01)
28%	($83,261.26)	($24,490.66)	($8,099.65)
29%	($87,208.83)	($27,416.58)	($10,041.58)
30%	($90,959.14)	($30,194.85)	($11,885.84)
31%	($94,525.19)	($32,835.27)	($13,638.91)
32%	($97,918.95)	($35,346.91)	($15,306.75)
33%	($189,172.93)	($37,738.10)	($16,894.86)
34%	($104,232.93)	($40,016.52)	($18,408.32)
35%	($107,172.77)	($42,189.29)	($19,851.81)
36%	($109,979.71)	($44,262.97)	($21,229.66)
37%	($112,661.80)	($46,243.62)	($22,545.89)
38%	($115,226.53)	($48,136.87)	($23,804.20)
39%	($117,680.83)	($49,947.94)	($25,008.05)
40%	($120,031.14)	($51,681.66)	($26,160.62)
41%	($122,283.44)	($53,342.52)	($27,264.88)
42%	($124,443.30)	($54,934.69)	($28,323.60)
43%	($126,515.91)	($56,462.06)	($29,339.33)
44%	($128,506.07)	($57,928.24)	($30,314.47)
45%	($130,418.30)	($59,336.59)	($31,251.25)
46%	($132,256.78)	($60,690.26)	($32,151.74)
47%	($134,025.45)	($61,992.17)	($33,017.88)
48%	($135,727.96)	($63,245.07)	($33,851.49)
49%	($137,367.74)	($64,451.51)	($34,654.25)
50%	($138,948.00)	($65,613.89)	($35,427.76)
51%	($140,471.75)	($66,734.45)	($36,173.49)
52%	($141,941.80)	($67,815.29)	($36,892.85)
53%	($143,360.80)	($68,858.38)	($37,587.13)
54%	($144,731.22)	($69,865.56)	($38,257.56)
55%	($146,055.40)	($70,838.58)	($38,905.28)
56%	($147,335.54)	($71,779.07)	($39,531.39)
57%	($148,573.69)	($72,688.55)	($40,136.90)
58%	($149,771.80)	($73,568.47)	($40,722.76)
59%	($150,931.69)	($74,420.19)	($41,289.87)
60%	($152,055.10)	($75,245.00)	($41,839.09)
61%	($153,143.64)	($76,044.09)	($42,371.22)
62%	($154,198.86)	($76,818.61)	($42,887.01)
63%	($155,222.20)	($77,569.64)	($43,387.17)
64%	($156,215.04)	($78,298.18)	($43,872.39)
65%	($157,178.67)	($79,005.21)	($44,343.29)
66%	($158,114.32)	($79,691.63)	($44,800.49)
67%	($159,023.15)	($80,358.31)	($45,244.55)
68%	($159,906.27)	($81,006.05)	($45,676.02)
69%	($160,764.71)	($81,635.62)	($46,095.40)
70%	($161,599.47)	($82,247.77)	($46,503.18)
71%	($162,411.49)	($82,843.19)	($46,899.84)
72%	($163,201.65)	($83,422.53)	($47,285.79)
73%	($163,970.81)	($83,986.42)	($47,661.47)
74%	($164,719.77)	($84,535.46)	($48,027.26)
75%	($165,449.29)	($85,070.21)	($48,383.54)
76%	($166,160.11)	($85,591.21)	($48,730.66)
77%	($166,852.92)	($86,098.98)	($49,068.98)
78%	($167,528.38)	($86,593.99)	($49,398.81)
79%	($168,187.12)	($87,076.72)	($49,720.46)
80%	($168,829.74)	($87,547.61)	($50,034.23)
81%	($169,456.82)	($88,007.08)	($50,340.40)
82%	($170,068.89)	($88,455.54)	($50,639.23)
83%	($170,666.49)	($88,893.36)	($50,930.98)
84%	($171,250.11)	($89,320.92)	($51,215.90)
85%	($171,820.23)	($89,738.57)	($51,494.22)
86%	($172,377.30)	($90,146.64)	($51,766.16)
87%	($172,921.76)	($90,545.45)	($52,031.94)
88%	($173,454.02)	($90,935.31)	($52,291.75)
89%	($173,974.49)	($91,316.52)	($52,545.80)
90%	($174,483.55)	($91,689.36)	($52,794.28)
91%	($174,981.56)	($92,054.09)	($53,037.36)
92%	($175,468.88)	($92,410.97)	($53,275.21)
93%	($175,945.83)	($92,760.26)	($53,507.99)
94%	($176,412.75)	($93,102.18)	($53,735.88)
95%	($176,869.95)	($93,436.97)	($53,959.01)
96%	($177,317.71)	($93,764.85)	($54,177.54)
97%	($177,756.33)	($94,086.02)	($54,391.60)
98%	($178,186.08)	($94,400.69)	($54,601.33)
99%	($178,607.23)	($94,709.04)	($54,806.86)
100%	($179,020.02)	($95,011.28)	($55,008.30)

Conclusion:

Deluxe is profitable with positive NPW between	0% to 14%
Regular is profitable with positive NPV between	0% to 21%
Economy is profitable with positive NPV between	0% to 24%

To determine

ii.

Alternative to be selected when MARR=15%.

Answer to Problem 19P

Incremental from Regular to deluxe (Deluxe-Regular) is not profitable as incremental rate of return is less than 15%	5.32%
Incremental from economy to Regular (Regular-Economy) is not profitable as incremental rate of return is less than 15%	16.52%

Explanation of Solution

Given:

	Deluxe	Regular	Economy
First Cost	$220,000	$125,000	$75,000
Useful Life	5	6	7
Salvage Value	16000	6900	3000

Concept used:

Incremental from Regular to deluxe (Deluxe-Regular) is not profitable as incremental rate of return is less than 15%	5.32%
Incremental from economy to Regular (Regular-Economy) is not profitable as incremental rate of return is less than 15%	16.52%

Conclusion:

Incremental from Regular to deluxe (Deluxe-Regular) is not profitable as incremental rate of return is less than 15%	5.32%
Incremental from economy to Regular (Regular-Economy) is not profitable as incremental rate of return is less than 15%	16.52%