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 14% per year. 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 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

Answered: Image /qna-images/answer/d7995133-ed5f-491c-ba49-257a7985cb73.jpg

Answered: Perform an incremental analysis of…

Perform an incremental analysis of these alternatives using the IRR method for each increment of cash flows. The MARR is 14% per year.

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 10E

See similar textbooks

Related questions

Q: Theoretically, when we are going through the procedure to calculate the incremental ROR (ΔROR), we…

A: When there are two competing investment possibilities with differing investment quantities, the…

Q: An aerospace industry decides to purchase a new advanced machine.the cost of the machine are…

A: Given: To Find: The optimal machine:

Q: Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study…

A: We are going to use expectation hypothesis to calculate Present Wroth for each project to answer…

Q: A 2,000 square foot house in New Jersey costs $1,725 each winter to heat with its existing…

A: According to the data given, we will construct an excel sheet to find out the discounted payback…

Q: Assume alternatives A and B are being evaluated by the rate of return method against a MARR of 15%…

A: The internal rate of return (IRR) of alternative A is higher than that of IRR of alternative B.

Q: The present worth of a multi-year investment with all positive cash flows (incomes) other than the…

A: The present value can be calculated by using the equation given below:

Q: Lignin is a basic component of almost any plant that grows, so it is one of the most abundant…

A: * SOLUTION :- From the cash flow diagram we can see the cash flow in each subsequent year is…

Q: An integrated, combined cycle power plant produces 285 MW of electricity by gasifying coal. The…

A: The period of payback shows the estimated the year which are essential to cash inflow equivalent the…

Q: The Department of Energy is proposing new rules mandating either a 20% increase or a 35% increase in…

A: The table shows the two alternative with 20% and 35% in efficiency as follows:

Q: Which of the computational methods do we use to find the incremental IRR of the given projects and…

A: We use Net Present Value (NPV) to compute IRR through the incremental analysis and interpolation…

Q: PW analysis for one project refers to the value of all cash flows converted to a single sum…

A: In the mentioned question we have been asked what actually PW is and do the given statement is true…

Q: A reservoir will initially cost P200M, have P1M in annual maintenance costs, and P5M in minor…

A: Initial cost is the amount of revenue needed to build or renovate a significant institution.…

Q: XYZ Inc plans to construct an additional building at the end of 10 years for for an estimated cost…

A: Time period = 10 years Estimated cost after 10 years = P5,000,000 Interest rate = 13% = 0.13…

Q: The cost of upgrading a section of Grand Loop Road in Yellowstone National Park is $2.1 million.…

Q: A piece of new equipment has been proposed by engineers to increase the productivity of a certain…

A: here we calculate the present worth by using the formula and draw the cash flow which are as follow-

Q: The engineering team at Manuel's Manufacturing, Inc., is planning to purchase an enterprise resource…

A: Present worth:- The term "present value" refers to the value that a monetary amount currently has as…

Q: For each of the following scenarios, state whether an incremental ROR analysis is required to select…

A: Since, the question has several parts. As per our honor code, we are providing solution of only…

Q: A printing press machine has a cash equivalent of P250,000. For the first three years, it will…

A: Given information First cost=P250000 Profit for 3 years=P20000 per year Profit for 4 years=P35000…

Q: Garcia and Company is considering four mutually exclusive alternatives for CNC machining. The four…

A: The incremental internal rate of return is used in a situation where there are two probabilities…

Q: Why is it okay to use Incremental IRR between two same life projects that has different first cost…

A: incremental IRR is important to work on the financial returns, with the two competition investment…

Q: The cost of upgrading a section of Grand Loop Road in Yellowstone National Park is $2.4 million.…

A: Given: Cost of upgrading=$2.4 million Other maintenance every 5 years=$460000 Interest rate=11%

Q: A cement grinding mill “A” with a capacity of 50 tons per hour utilizes forged steel grinding balls…

A: Given: Mill A: Capacity per hour=50 tons Cost per ton=P12000 Wear rate per ton cement milled=100…

Q: new vending machine is being considered to purchase. The estimated first cost is php 75,000 the…

Q: A water utility is investigating two options for delivering water from a new source. The costs for…

Q: A municipal bond with a face value of $10,000 was issued today with an interest rate of 6% per year…

A: Face value (FV) is $10,000. The interest rate (i) is 6%. Interest payment is semiannual. Thus, the…

Q: Required information A regional infrastructure building and maintenance contractor must decide to…

A: Present price of machine = $67300 Future price of machine = $81300 Time = 2 years Interest rate =…

Q: (engineering economics) Determine the best alternative based on a 12% MARR using the following…

A: Year A B C 0 -100 -120 -40 1 0 0 -50 2 10 40 15 3 10 0 15 4 10 40 15 5 10 0 15 6 10 40…

Q: LEIS company is planning to borrow P10.5M for a company expansion and is not sure what the interest…

A: In economics, expansion is an upward trend in the business cycle characterised by an increase in…

Q: You are considering two types of automobiles. Model A costs $18,000, andModel B costs…

A: Table 1 shows the initial purchase price and sales price of model A and model B automobiles…

Q: Capital Investment $100,000 $152,000 $184,000 $75,000 Annual Revenues less expenses 15,200 31,900…

A: There is 4 mutually exclusive alternative with their costs and revenues are given. MARR is 15% and…

Q: what is the rate of return for each alternative and for the incremental difference? if the MARR is…

A: The net gain or loss of associate investment over a particular period of time, explicit as a…

Q: If the IRR of Alternative A is 10%, the IRR of Alternative B is 8% and the MARR is 6%, which of the…

A: Internal rate of return (IRR) analyzes the investment for profitability by measuring the expected…

Q: Schneeberger, Inc. is considering two alternatives to increase the acceleration of its linear motor…

Q: The PW-based relation for the incremental cash flow series to find Δi* between the lower first-cost…

A: The incremental rate of return can be calculated using the spreadsheet function as follows:

Q: To remedy the traffic situation at a busy intersection in Quezon City, two plans are being…

A: Given: Plan A: Cost of Cloverleaf=P 92,00,000 Plan B: P 65,00,000 Interest rate=18%

Q: A bridge will have a first cost of Php 10,000,000, an annual maintenance cost of Php50,000 and minor…

A: Capitalized cost - Additional cost is based on the value of assets declared in the company balance…

Q: Q5-) A regional infrastructure building and maintenance contractor must decide to buy a new compact…

A: Inflation refers to a rise in the average level of price of goods and service in the economy. A…

Q: Advanced Modular Technology (AMT) makes energy cleaner, safer, more secure and more efficient. It…

A: Internal Rate of Return (IRR) is defined as the minimum amount of return which an investor requires…

Q: The first cost of a certain piece of equipment is Php50,000. It will have an annual operating cost…

A: In economics, present value refers to the current value of the future stream of cash flow. Future…

Q: Complete the decision rule for the IRR method. If then the project is economically justified.

A: IRR stands for internal rate of returns. IRR is the expected growth that an investment produces…

Q: A printing press machine has a cash equivalent of P250,000. For the first three years, it will…

A: Given, Total investment of printing press machine is P250,000. Profit for first 3 years(each) =…

Q: Lignin is a basic component of almost any plant that grows, so it is one of the most abundant…

A: Present worth is that the idea that states associate degree quantity of cash these days is value…

Q: A large lithium-ion phosphate battery pack for an industrial application is expected to save $20,000…

A: Investment: It is a fundamental piece of abundance creation, which causes you beat expansion to…

Q: Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is…

A: Initial cost = $ 380million Maintenance cost = $730,000 Painting Cost = 76,000 at 9th year Period =…

Q: Two electric motors (A and B) are being considered to drive a centrifugal pump. Each motor is…

A: Given that, Two electric motors (A and B) are being considered to drive a centrifugal pump. Each…

Q: A piece of new equipment has been proposed by engineers to increase the productivity of a certain…

A: Given: Investment (I) = $10,000 Savings (A) = $5,000 Salvage Value (S) = $1500 Study period =five…

Q: Fiesta Foundry is considering a new furnace that will allow them to be more productive. Three…

A: In this question we have to find out the which furnace will be selected according the above…

Question

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 14% per year.

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

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

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.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

A one-mile section of a roadway in Florida has been washed out by heavy rainfall. The county is considering two options for rebuilding the road. Pertinent data are presented below. If the county's MARR for this type of project is 9% per year, which replacement option should be chosen? Assume repeatability. 1) The equivalent uniform annual cost for the asphalt option is $ ? 2) The equivalent uniform annual cost for the concrete option is $ ? 3) Select the ? option.
Here are the data for an asset that is being considered: Initial cost=$35,000 Salvage value at 5 years=$5000 Rebuild cost at 3 years=$25,000 Annual net cash flow=$22,000 per year What is the ROR for this asset? (You can use the excel function "IRR" for this problem) a)53.0% b)41.0% c)43.9% d)42.8%
An investment of P 270,000 can be made in a project that will produce a uniform annual revenue of P 185,400 for 5 yrs and then have a salvage value of 10% of the investment. Out of pocket costs for operation and maintenance will be P 81,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes. Is this a desirable investment?
Solve the Engineering Economics Problem: Project Feasibility Indicator Which alternative should be selected based on BCR? Assume i=7% and a study period of 10 years. Sensor A: First cost: Php 87,000 Annual M&O: Php 64,000 Annual Benefits: Php 160,000 Annual Disbenefits: --- Sensor B First cost: Php 38,000 Annual M&O: Php 49,000 Annual Benefits: Php 110,000 Annual Disbenefits: Php 26,000
4. Incremental ROR and B/C methods require the LCM of the two alternatives being compared. Select one: True False
An investment of P270,000 can be made in a project that will produce a uniform annual revenue of P185,400 for 5 years and then have a salvage value of 10% of the investment. Out-of-pocket cost for operation andmaintenance will be P81,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes. (a) Future Worth Method(b) Present Worth Method What is the future worth of net cash flows
An oil company plans to purchase a piece of vacant land at the corner of two busy streets for $50,000. On properties of this type, the company installs businesses of three different types. Each has an estimated useful life of 15 years. The salvage value for each is estimated to be the $50,000 land cost. Plan Cost (in addition to land cost) Type of business Net annual income A $ 83,000 Conventional gas station $ 26,500 B $ 195,000 Add automatic car wash $ 39,750 C $ 115,000 Add quick car wash $ 31,200 if the oil company expects a 10% rate of return on its investments, which plan (if any) should be selected? Use incremental analysis, before tax.
The data below are estimated for a project study. i = 10% Plan A Initial Investment P 35,000 Annual Operating Cost P 6,450 Life 4 years Salvage Value none Annual Revenue 19,000 Plan B Initial Investment P 50,000 Annual Revenue P 25,000 Annual Disbursement P 13830
A design change being considered by Mayberry, Inc., will cost $6,000 and will result in an annual savings of $1,000 per year for the 6-year life of the project. A cost of $2,000 will be avoided at the end of the project as a result of the change. MARR is 8%/yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should Mayberry implement the design change?
You are faced with a decision on an investment proposal. Specifically, the estimated additional income from the investment is $125,000 per year; the investment cost is $400,000; and the first year estimated expense of $20,000 and will increase a rate of 5% per year. Assume an 8-year analysis period, no salvage value, and MARR = 15% per year. a. Calculate the PW and FW of this proposal? b. What is the ERR ( Ԑ=MARR) of this proposal? c. What is the Simple and Discounted payback? include the cash flow diagram and conclusion
You are faced with a decision on an investment proposal. Specifically, the estimated additional income from the investment is $125,000 per year; the investment cost is $400,000; and the first year estimated expense of $20,000 and will increase a rate of 5% per year. Assume an 8-year analysis period, no salvage value, and MARR = 15% per year. a. Calculate the PW and FW of this proposal? b. What is the ERR ( Ԑ=MARR) of this proposal? c. What is the Simple and Discounted payback? (Upload the picture of your complete solutions including the correct cash flow diagram and your conclusion.)
Determine the present worth, future worth, and annual worth of the following engineering project when the MARR is 15% per year. Is the project acceptable? Investment cost $10,000Expected life 5 yearsMarket (salvage) value $1,000Annual receipts $8,000Annual expenses $4,000