Consider four mutually exclusive alternatives: A B C D Cost $65 $55 $25 $80 Uniform annual benefit 16.3 15.1 5.2 21.3 Each alternative has a 6-year useful life and no salvage value. The MARR is 9%. Which alternative should be selected, based on (a) The payback period (b) Future worth analysis (c) Benefit-cost ratio analysis

Consider four mutually exclusive alternatives: A B C D Cost $65 $55 $25 $80 Uniform annual benefit 16.3 15.1 5.2 21.3 Each alternative has a 6-year useful life and no salvage value. The MARR is 9%. Which alternative should be selected, based on (a) The payback period (b) Future worth analysis (c) Benefit-cost ratio analysis

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Should you replace the Defender?MARR: 12% ❑ Given: DefenderMarket price: $100,000Remaining useful life: 3 yearsSalvage value: $25,000O&M cost: $8,000 ChallengerCost: $150,000Useful life: 3 yearsSalvage value: $55,000O&M cost: $6,000
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?
Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected? Alternative A B Fist cost $2,000 $3,000 Uniform annual benefit $450 $600 Salvage Value $200 700 Useful life 6 years 6 years Hint: Equation: PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000 PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000 or Spreadsheet: PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000 PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000
9. Consider the following table which summarizes data of two alternatives. First cost Annual return Life Alternative 1 Rs. 5,00,000 Rs. 1,50,000 10 yrs Alternative 2 Rs. 8,00,000 Rs. 2,50,000 10 yrs Find the best alternative based on the rate of return method of comparison.
2. Your firm is considering the following 3 mutually exclusive alternatives. Interest rate is10%. A B CInitial Cost $35,000.00 $21,000.00 $42,000.00Annual Benefit $4,200.00 $3,300.00 $5,000.00Salvage value 0 $1,000 $1500Project life Forever 20 year 50 a. Calculate the Benefit-Cost ratio of each projectb. Which of the 3 alternatives should be selected using B/C ratio analysis (show yourwork)?
Using benefit–cost ratio analysis, determine which one of the three mutually exclusive alternatives should be selected. Each alternative has a 10-year useful life. Assume a 20% MARR.
Answer using excel: Machine A costs $316 and produces a profit of $106 at the end of each year for 7 years, while Machine B costs $128 and produces a profit of $71 at the end of each year for 4 years. Assuming the operation continues indefinitely and the cost of capital is 13%. Calculate equivalent annual value (EAV) to determine the better option. Enter EAV for Machine A below.
Three mutually exclusive projects are being considered.First cost 2000 3000 4000uniform annual benefit 200 300 0salvage value 1000 2700 5600useful life in years 5 6 7when each project reached the end of its useful life, it would be sold for its salvage value and there would be no replacement. if 8% is the desired rate of return, which project should be selected? use future worth analysis.
Calculate the modified benefit-cost ratio for the alternative: Initial Investment Cost 350000 Revenues 150000 Costs 55000 Salvage 120000 n 7 MARR 0.1 Select one: a. 1.4599 b. 1.4101 c. 1.7354 d. 1.6035 e. 1.6480
Determine the B/C ratio for the following project.First Cost = P100, 000Project life, years = 5Salvage value = P10, 000Annual benefits = P60, 000Annual O and M = P22, 000Interest rate= 15%
Compare the following investment alternatives using PW analysis and an annual interest rate of %12, compounded monthly. Alternative-A Alternative-B First cost, $ 240,000 450,000 Uniform Annual operating cost, $ 22,000 34,000 Uniform quarterly Benefit, $ 65,000 77,000 Salvage value, $ 120,000 230,000 Life, year 25 infinite
Compare the following alternatives based on the rate of return analysis assuming that the MAAR is 15% per year. Project A Project B Initial Cost $60.000 $90.000 Annual cost of operation 15.000 8.000 Annual cost of reparation 5.000 2.000 Annual increase of the repair 1.000 1.500 Salvage value 8.000 12.000 Life, years 15 15

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