Fiesta Foundry is considering a new furnace that will allow them to be more productive. Three alternative furnaces are under consideration. Perform an incremental analysis of these alternatives using the IRR method for each increment of cash flows. The MARR is 11% per year. Furnace AFurnace BFurnace C$440,000$70,000Initial investment$310,000$70,000$240,000$80,000Annual revenues *Annual costSalvage value$14,000$50,00020 years$5,000$40,000$11,000$35,00020 years20 years* Annual revenue and cost figures are increases over the "do nothing" alternative (DN).Life of asset Perform the incremental PW Analysis. Fill-in the table below (Hint: Order alternatives by increasing capital investment). (Round to the nearest dollar.)IncrementalInvestmentInc. PWAlternative to be selectedA(CDN)Furnace CA(BFurnace CA(AFurnace C

Present Worth(PW) is worth of proposed investment in current point of time. It is computed by…

Fiesta Foundry is considering a new furnace that will allow them to be more productive. Three alternative furnaces are under consideration. Perform an incremental analysis of these alternatives using the IRR method for each increment of cash flows. The MARR is 11% per year.

Fiesta Foundry is considering a new furnace that will allow them to be more productive. Three alternative furnaces are under consideration. Perform an incremental analysis of these alternatives using the IRR method for each increment of cash flows. The MARR is 11% per year.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 1PROB

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Furnace A
Furnace B
Furnace C
$440,000
$70,000
Initial investment
$310,000
$70,000
$240,000
$80,000
Annual revenues *
Annual cost
Salvage value
$14,000
$50,000
20 years
$5,000
$40,000
$11,000
$35,000
20 years
20 years
* Annual revenue and cost figures are increases over the "do nothing" alternative (DN).
Life of asset

Perform the incremental PW Analysis. Fill-in the table below (Hint: Order alternatives by increasing capital investment). (Round to the nearest dollar.)
Incremental
Investment
Inc. PW
Alternative to be selected
A(C
DN)
Furnace C
A(B
Furnace C
A(A
Furnace C

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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