details for the two project proposals are shown below: IRR NPW (15%) EUAW(15%) OJECT 1 20.01% $33.483 $9.988 DJECT 18.26% $29.076 $8.674 WARR is 25% per year, which alternative is better? ct one: a. PROJECTI
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- The cash flows for three mutually exclusive alternatives are given in table below. MARR = 4%. Alt A $15,000 $4,500 15% Initial cost Annual benefits ROR Life in years Reference Case Study 8 Alt B 27,000 7,600 13% 5 Alt C 24,000 6,500 11% Determine the AROR for the second increment (Alt. B- Alt.A) if A was retained during the first incremental analysis. OA.5.78% B. 10.85% O C.9.19% OD.8 12% 4Which of the following interpretations would be best for the scenario analysis results shown below? Worst- case PW (18%) -$650,000 IRR 2.10% Most- likely case Best-case $58,000 $2,660,000 33% 14.60% a. Since the most-likely case has a PW <0, the project should be abandoned immediately b. Since the worst-case has a negative present worth, this project must be rejected. c. Since the average of the three cases is a positive present worth, the project is acceptable. d. Because only one of the scenarios shows the project as profitable, the project should be considered very risky, and, if accepted, should be subject to greater scrutiny in its planning and forecasting.Incremental Analysis is required for mutually exclusive project analysis using which of these techniques?? a. Present Worth Analyses b. Benefit-Cost Analysis c. Annual Worth Analysis d. Discounted Payback Analysis e. None of the above
- The following four alternative investments are being compared at MARR of 12%. Which investment is the most economical over the entire service life? Alt. L Alt. W 10 10 $590,000 $645,000 Alt. D 10 $495,000 14.2% 9 13.4% 15% 6 5 Service life (years) Net PW IRR Disc payback period (yrs) Alt. X 10 $533,000 16.2% 8 OA. Alternative D because it has the longest payback period OB. Alternative W because it has the highest net PW OO C. Alternative L because it has the shortest payback period OD. Alternative X because it has the highest IRR1. Breakeven Analysis An aerodynamic three-wheeled automobile (the Dart) runs on compressed naturalgas stored in two cylinders in the rear of the vehicle. The $13,000 Dart can cruise at speeds up to 80 miles per hour, and it can travel 100 miles per gallon of fuel. Another two-seater automobile costs $10,000 and averages 50 miles per gallon of compressed natural gas. If fuel costs $8.00 per gallon and MARR is 10% and 15%per year, over what range of annual miles driven is the Dart more economical? Assume a useful life of five years for both cars.2. Sensitivity Analysis We know the standard means of cutting the high cost of driving our automobiles—slow down your speed, no jack rabbit starts, inflate tires properly, clean air filters regularly, and so on. Another way to reduce the cost of driving is to join every bigrigger in the United States and half of Europe-go diesel. Diesels are inherently more efficient than gasoline engines because they deliver a third better fuel mileage. They…If 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.
- A dam is proposed on a stretch of wild river, a river that is currently used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years, after which its reservoir will be full of sediment and the dam will need to be removed. The following are characteristics of the dam: Initial Cost: $100,000,000 Electricity produced: 100,000 MWh per year, at $100/MWh. Cost of decommissioning dam: $10,000,000. Value of recreation lost: $5,000,000 per year. 1. If the social discount rate is 3% per year, is the dam a good idea? 2. If the social discount rate is 10% per year, is the dam a good idea? 3. Calculate the "cutoff" discount rate, c3 such that the dam is a good idea for discount rates c.! The cash flow diagram of two mutually exclusive alternatives is given below, Select the best alternative at i = 8% Alternative A 0 500,000 Alternative B 0 7,00.000 50,000 1 70,000 1,00,000 2 1,40,000 O Alternative A Alternative B 1.50,000 3 2,00,000 2.10,000 3 2,50,000 A 2,80.000 A 4 5 3,00,000 Suy 3,50,000 5 4.20,000 Profit is the same for A and B both of A and B are losers 6 both of A and B are profitableIf a company must choose between two projects, it should proceed with the one that generates a higher IRR True False
- 10. Jake is considering renovating his movie theaters. Data for four different designs are shown. Each one has a 12-year life, no market value, and the MARR is 15% per year. One of these designs must be selected. Use the Incremental Investment Analysis Procedure with the ERR Method to determine which design is best. Clearly indicate the ERR for each increment. e = 15%. A B D. Capital Investment Annual revenue less expenses $60,000 $14.000 $45,000 $12,000 $40,000 $10,000 $28,000 $8,000The 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.4.3. Use ERR analysis to determine which alternative would be the best economical choice. Verify your decision with NPC analysis. Assume the MARR equals 10%. Alternative A: -500 -25 -25 -25 -25 L = 100 Alternative B: 1 3 -300 -50 -50 -50 -50 L= 25 Alternative C: 2 3 -250 -75 -60 -45 -30 L= 10 Alternative D: 2 450 -35 -35 -35 -35 L= 100