Consider six mutually exclusive and indivisible investment alternatives under evaluation by TranSystems in their bridge and structure design group. At any time TranSystems chooses to exit the investment, their initial financial outlay will be refunded, in addition to the annual returns earned. Based on the data shown below and a MARR of 10 percent, determine the preferred alternative. (Note: There is no planning horizon specified, so pick any number of years you like—the optimum portfolio and the IRR will remain the same, since the ‘‘initial investment’’ and the ‘‘salvage value’’ are the same, and the annual returns are constant each year. The PW will differ depending upon number of years selected, and yet will be a consistent measure.) Alternative 1 2 3 4 5 6 Initial Investment $25,000 $35,000 $30,000 $40,000 $60,000 $50,000 Annual Return $2,600 $3,750 $3,050 $4,775 $6,750 $5,850 a. Which alternative should TranSystems select? Use the IRR method to determine the preferred alternative. Please use Excel and show formulas b. Use SOLVER in Excel to select the preferred investment based on PW. State both the PW and IRR.
Consider six mutually exclusive and indivisible investment alternatives under evaluation by TranSystems in their bridge and structure design group. At any time TranSystems chooses to exit the investment, their initial financial outlay will be refunded, in addition to the annual returns earned. Based on the data shown below and a MARR of 10 percent, determine the preferred alternative. (Note: There is no planning horizon specified, so pick any number of years you like—the optimum portfolio and the IRR will remain the same, since the ‘‘initial investment’’ and the ‘‘salvage value’’ are the same, and the annual returns are constant each year. The PW will differ depending upon number of years selected, and yet will be a consistent measure.)
Alternative 1 2 3 4 5 6
Initial Investment $25,000 $35,000 $30,000 $40,000 $60,000 $50,000
Annual Return $2,600 $3,750 $3,050 $4,775 $6,750 $5,850
a. Which alternative should TranSystems select? Use the IRR method to determine the preferred alternative. Please use Excel and show formulas
b. Use SOLVER in Excel to select the preferred investment based on PW. State both the PW and IRR.
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