Harold and Mavone plan to purchase furniture, appliances, some heirloom artifacts, as well as new woodworking and pottery-making equipment to furnish a renovated heritage home in Brazos de Dios, Texas, that they have recently purchased. The hobby equipment is a questionable purchase economically, since the couple plans to sell their artifacts online for a secondary retirement income. Estimates have been developed using two vendors for hobby enthusiasts that provide equipment and marketing services on contract. Note that the vendor's contract periods vary. If the hoped-for MARR is 20% per year, determine which vendor, or neither, should be selected using an incremental ROR analysis. Solve using spreadsheet functions. Vendor Initial cost, $ M&O costs, $/year Revenue, $/year Resale value, $ Contract life, years The IRR of Hobby-Tru is The IRR of Knack's is Hobby-Tru (H) -10,000 -10,000 14,500 500 3 19 %. alternative is selected. %. Knack's (K) -27,500 -8,500 17,000 1,000 6

Harold and Mavone plan to purchase furniture, appliances, some heirloom artifacts, as well as new woodworking and pottery-making equipment to furnish a renovated heritage home in Brazos de Dios, Texas, that they have recently purchased. The hobby equipment is a questionable purchase economically, since the couple plans to sell their artifacts online for a secondary retirement income. Estimates have been developed using two vendors for hobby enthusiasts that provide equipment and marketing services on contract. Note that the vendor's contract periods vary. If the hoped-for MARR is 20% per year, determine which vendor, or neither, should be selected using an incremental ROR analysis. Solve using spreadsheet functions. Vendor Initial cost, $ M&O costs, $/year Revenue, $/year Resale value, $ Contract life, years The IRR of Hobby-Tru is The IRR of Knack's is Hobby-Tru (H) -10,000 -10,000 14,500 500 3 19 %. alternative is selected. %. Knack's (K) -27,500 -8,500 17,000 1,000 6

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 3E

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