ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chapter 9, Problem 32P
To determine
The best story building with MARR of
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2. Three mutually exclusive design alternatives are being considered. The estimated sales and cost data for each alternative have been tabulated. The MARR is 20 per year. Annual revenues are based on the number of units sold and the selling price. Annual expenses are based on fixed and variable costs. Determine which selection is preferable based on F W. Confirm your selection by separately checking is preferable using PW. A B Cc Investment cost S 30 000 S 60 000 50 000 Est. units sold year 15 000 20 000 18 000 Unit selling price S 3.50 4.40 4.10 Unit variable cost S 1.00 1.40 1.15 Fixed annual expenses S 15 000 S 30 000 S 26 000 Market value 0 S 20 000 15 000 Useful life 10 yrs 10 yrs 10 yrs
The estimated negative cash flows for three design alternatives are shown below. The MARR is 10% per year and the study period is four years.
Which alternative is best based on the IRR method? Doing nothing is not an option.
Capital
investment
Annual expenses
OA. Alternative B
OB. Alternative C
OC. Alternative A
EOY
0
1-4
A
$85,700
8,500
Alternative
B
$64,500
Which alternative would you choose as a base one? Choose the correct answer below.
15,150
C
$71,900
12,450
Two mutually exclusive alternatives are being considered for company's use. One of these alternatives must
be selected. The firm's MARR is 20% per year. The estimated cash flows for each alternative are as follows:
Alternative 1
Alternative 2
Capital investment
Annual expenses
Useful life(years)
Market value(at end of useful life)
$20,000
5,500
$38,000
4,000
5
10
$1.000
$4.200
Which equipment alternative should be selected using NPW-C with a study period of 10 years?
Assume the study period is shortened to five years. Which alternative would you recommend
using NPW-C?
Chapter 9 Solutions
ENGR.ECONOMIC ANALYSIS
Ch. 9 - Prob. 2QTCCh. 9 - Prob. 3QTCCh. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8P
Ch. 9 - Prob. 9PCh. 9 - Prob. 10PCh. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Prob. 27PCh. 9 - Prob. 28PCh. 9 - Prob. 29PCh. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33PCh. 9 - Prob. 34PCh. 9 - Prob. 35PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Prob. 38PCh. 9 - Prob. 39PCh. 9 - Prob. 40PCh. 9 - Prob. 41PCh. 9 - Prob. 42PCh. 9 - Prob. 43PCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Prob. 46PCh. 9 - Prob. 47PCh. 9 - Prob. 48PCh. 9 - Prob. 49PCh. 9 - Prob. 50PCh. 9 - Prob. 51PCh. 9 - Prob. 52PCh. 9 - Prob. 53PCh. 9 - Prob. 54PCh. 9 - Prob. 55PCh. 9 - Prob. 56PCh. 9 - Prob. 57PCh. 9 - Prob. 58PCh. 9 - Prob. 59PCh. 9 - Prob. 60PCh. 9 - Prob. 61PCh. 9 - Prob. 62PCh. 9 - Prob. 63PCh. 9 - Prob. 64PCh. 9 - Prob. 65PCh. 9 - Prob. 66PCh. 9 - Prob. 67PCh. 9 - Prob. 68PCh. 9 - Prob. 69PCh. 9 - Prob. 70PCh. 9 - Prob. 71PCh. 9 - Prob. 72PCh. 9 - Prob. 73PCh. 9 - Prob. 74PCh. 9 - Prob. 75PCh. 9 - Prob. 77PCh. 9 - Prob. 78PCh. 9 - Prob. 79PCh. 9 - Prob. 80PCh. 9 - Prob. 81PCh. 9 - Prob. 83PCh. 9 - Prob. 84PCh. 9 - Prob. 85PCh. 9 - Prob. 86PCh. 9 - Prob. 87PCh. 9 - Prob. 88P
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- When comparing multiple alternatives, the DPBP can lead to wrong conclusions regarding the maximum economic worth. True or False?arrow_forwardIf mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV) and internal rate of return (IRR) methods always agree. Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. Year Project Y Project Z 0 -$1,500 -$1,500 1 $200 $900 2 $400 $600 3 $600 $300 4 $1,000 $200 NPV (Dollars) 800 600 Project Y 400 Project Z 200 -200 0246 8 10 12 14 16 18 20 COST OF CAPITAL (Percent) If the weighted average cost of capital (WACC) for each project is 14%, do the NPV and IRR methods agree or conflict? O The methods agree. O The methods conflict.arrow_forwardA 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?arrow_forward
- The estimated negative cash flows for three design alternatives are shown below. The MARR is 13% per year and the study period is four years. Which alternative is best based on the IRR method? Doing nothing is not an option. Capital investment Annual expenses EOY 0 A. Alternative B B. Alternative A C. Alternative C 1-4 A $82,400 6,200 Alternative B $64,500 12,100 с $71,900 9,550 Which alternative would you choose as a base one? Choose the correct answer below.arrow_forwardAcme Tools has four alternatives for an injection molding machine (A, B, C, D) as shown below. MARR is 20%. Use incremental cash flow analysis to determine the economically optimal system. Solve this problem in Excel, copy and paste the Excel model below, and provide an interpretation. A B C D Capital Investment $295,000 $350,000 $310,000 $340,000 Net Annual Revenue $75,000 $90,000 $75,000 $85,000 Residual Value $60,000 $82,000 $96,000 $85,000 Study Period 6 Years 6 Years 6 Years 6 Yearsarrow_forwardQuestion 1: Two mutually exclusive electricity generators are considered for purchase by XYZ company. Information relevant to compare the alternatives are summarized below. Which one should be selected for purchase using IRR method? The MARR is 10% per year. Generator A Generator B 100,000 Capital Investment (OMR) Market value at the 80,000 35,000 10,000 end of useful life (OMR) Annual fuel and 3,000 5,000 maintenance expenses (OMR) Service life 10 years 10 years Hints: You should solve using IRR only. Your answers should be presented in Wing a form of a Table. Show the iteration and interpolation procedure presented inarrow_forward
- feasibility studies please answer the following question and explain every detailarrow_forwardFor FW Method, if FW (i = MARR) = −30, then the project is economically _____________. justified barely justified sometimes justified unjustified nonearrow_forwardIf a company must choose between two projects, it should proceed with the one that generates a higher IRR True Falsearrow_forward
- The estimated negative cash flows for three design alternatives are shown below. The MARR is 14% per year and the study period is five years. Which alternative is best based on the IRR method? Doing nothing is not an option. Capital investment Annual expenses EOY 0 A. Alternative C B. Alternative B OC. Alternative A 1-5 CLEAN A $81,500 7,500 Alternative B $64,400 12,620 Which alternative would you choose as a base one? Choose the correct answer below. Analyze the difference between the base alternative and the second-choice alternative. C $71,000 10,420arrow_forwardA supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread. Neither machine has a market value at the end of seven years, and MARR is 12% per year. Use this information to answer (Select the closest answer), What is the minimum number of loaves that must be sold per year to justify installingMachine A instead of buying the loaves from the supplier? (a) 7,506 (b) 22,076 (c) 37,529 (d) 75,059 (e) 15,637.arrow_forwardA municipality is trying to decide on the purchase of a refuse collection vehicle. Two types are being considered, A and B, and the capital and operating costs are as shown. Each truck is expected to have a useful life of 10 yrs. t Truck A Truck B Initial(capital)cost $110,000 $85,000 Maintenance cost/yr. 3,000 6,000 Fuel and oil cost/yr 4,000 7,000 Which truck should the municipality purchase based on these costs alone? Calculate the cost both on an annual and present worth basis, assuming an interest rate of 8%. What is the Capital Recovery for Truck A? What is the Capital Recovery for Truck B? What is the Total Annual Cost for Truck B? What is the Total Annual Cost for Truck A?arrow_forward
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