Three mutually exclusive investment alternatives are being considered. The estimated cash flows for each alternative are given below. The study period is 30 years and the​ firm's MARR is 26​% per year. Assume repeatability and reinvestment of positive cash balances at 26​% per year. a. What is the simple payback period for Alternative​ 1? b. What is the annual worth of Alternative​ 2? c. What is the IRR of the incremental cash flows of Alternative 2 compared to Alternative​ 1?

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Three mutually exclusive investment alternatives are being considered. The estimated cash flows for each alternative are given below. The study period is 30 years and the​ firm's MARR is 26​% per year. Assume repeatability and reinvestment of positive cash balances at 26​% per year.

a. What is the simple payback period for Alternative​ 1?

b. What is the annual worth of Alternative​ 2?

c. What is the IRR of the incremental cash flows of Alternative 2 compared to Alternative​ 1?

d. Which alternative should be selected​?

 

 

Alt. 1

Alt. 2

Alt. 3

Capital Investment

−​$20,000

−​$60,000

−​$40,000

Annual Costs

−​$17,000

−​$30,000

−​$23,000

Annual Revenues

​$25,000

​$53,500

​$38,000

Market Value at End of Useful Life

9,000

9,000

9,000

Useful Life

5 years

5 years

6 years

IRR

34.4​%

29.7​%

31.7​%

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