Ñ1 6. Compare the following three alternatives by the IRR method, given MARR of 6%/year. First findif they are feasible and then compare them with the incremental rate of retum method (AROR).Alt.Benefits S/yr Salvage SConstruction cost SService Life (yrs)510,000145,000-10,000775.000155,00015,0001.075,000165,00020,000

NPV= Present value of all net cash inflows.

Answered: 6. Compare the following three…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Use the following alternatives to develop an incremental analysis choice table and answer the following questions. Alternative A Initial Cost - $15,000 Annual Revenue (Year 1-15) - $2500 Salvage Benefit (Year 15) - $2000 Alternative B Initial Cost - $25,000 Annual Revenue (Year 1-15) - $3500 Salvage Benefit (Year 15) - $5000 1. Determine the incremental rate of return IRRHigh-Low. Provide your answer as a percentage and round to the nearest hundredth. 2. Determine the internal rate of return for the higher cost alternative IRRHigh. Provide your answer as a percentage and round to the nearest hundredth. 3. Determine the internal rate of return for the lower cost alternative IRRLow. Provide your answer as a percentage and round to the nearest hundredth. Please answer all 3.
Two alternatives are being considered for installation. Which should be selected based on an interest rate of 5.6% per year ? Alternative A Alternative B First Cost, $ 135,000 462,000 Annual Operating Cost, $/yr 76,000 34,600 Salvage value, $ 71,200 n/a Life, years 9 ∞
An interest rate of 15% is used to evaluate a new system that has a first cost of $212,400, annual operating and maintenance costs of $41,200, annual savings of $94,600, a life of 6 years, and a salvage value of $32,500. After initial evaluation, the firm receives word from the vendor that the first cost is 5% higher than originally quoted. The percentage error in the system’s present worth from this is closest to what value? (a) 5% (b) 15% (c) 100% (d) 300%
Use the incremental ROR analysis to select the one economically best project for a 10% MARR. Project A B C D Initial Cost -200,000 -275,000 -190,000 -350,000 Salvage Value +22,000 +35,000 +19,500 +42,000 Life 5 5 5 5
EncryptCo is considering a project with a $50,000 first cost that returns $12,000 per year. Assume that it will have a salvage value of $6500 at the end of its service life. The MARR is 12 percent. (a) Calculate the payback period for this project. (b) Calculate the discounted payback period for this project. Use Excel to do this and include the Excel output in your Assignment report.
Compare two alternatives, A and B, on the basis of a present worth evaluation using i = 10% per year and a study period of 8 years. Alternative A B First cost, $ −15,000 −28,000 Annual operating cost, $/year −6,000 −9,000 Overhaul in year 4, $ — −2000 Salvage value, $ 3,000 5,000 Life, years 4 8
A firm is considering three mutually exclusive alternatives as a part of an upgrade to an existing transportation network. If the MARR is 10% per year, which alternative(if any) should be chosen using the IRR analysis procedure? Use trial & error and show your calculations. A B C Initial Cost 40000 30000 20000 Annual Revenue 10400 8560 7750 Annual Cost 4000 3000 2500 Salvage Value 3000 2500 2000 Useful Life 20 20 10
Alternative I has a first cost of $50,000, will produce an $18,000 net annual benefit over its 10-year life and be salvaged for $5,000. Alternative II costs $150,000 and has a salvage value of $50,000 after its 10-year useful life. If interest is 15%, what is the minimum amount of annual benefit that Alternative II must produce to make it the preferred choice? (a) This value can not be determined from the data given. (b) $23,500 (c) $31,450 (d) $35,708?
There are two MEA machines that you are evaluating: Machine A has a lifetime of 6, an initial cost of €138642 and a positive salvage value of €29860. Machine B has a lifetime of 4, an initial cost of €182463, annual cost of €49000 and a positive salvage value of €14820. Your MARR is 0,17%. If you have selected Machine A, what is the maximum annual cost that this machine may have?
A risk analysis has been performed, and the risk has been calculated at 0.05 fatalities/yr. A risk reduction measure has been proposed and if this is implemented, the risk will be reduced to 0.04 fatalities/yr (20% reduction).The cost of this risk reduction measure is 1 million in investment and 0.2 million yr−1 in operating costs. The risk reduction measure will have an effect for 20 years. For cost–benefit purposes, value of a statistical life (VSL) is set to 25 million. Perform a cost–benefit analysis and decide if the risk reduction measure has a positive cost–benefit or not. >> it is a risk management question
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What is the payback period for the project described below? Machine investment $24,999 MARR 10% Annual benefit $6,500 Annual maintenance $2,000 Life 10 years Salvage value $2,000

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