None 6-21. Two mutually exclusive design alternatives arebeing considered for purchase. Doing nothing is alsoan option. The estimated cash flows for each alternativeare given below. The MARR is 8% per year. Usingthe PW method, which alternative, if either, shouldbe recommended? State your assumptions and yourreasoning in arriving at a recommendation. (6.5)- 2,900 (P/A> 8,4) + 2000 (p2,900(P/A>Capital investmentAnnual revenuesAlternative 1 Alternative 2$18,000$9,000$22,000$11,000ETTAnnual expensesMV at end of useful lifeUseful lifeIRR$2,900$2,000$4,000$5004 years16.5%12 years30.6%26-21PW1 (8%)=-18,000+ 6,100 (P/A, 8%, 12)-16,000[(P/F, 8%, 4) + (P/F, 8%,8)] + 2,000 (P/F, 8%, 12)= $8,071.61PW2 (8%)=-22,000+ 7,000 (P/A, 8%, 12)+500 (P/F, 8%, 12)= $30,951.25Choose 2 to maximize profitability

Comparison and Recommendation:Since the present worth of Alternative 2 ($30,951.25) is greater than…

Answered: 6-21. Two mutually exclusive design…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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6. IRR (S5.3) a. Calculate the net present value of the following project for discount rates of 0, 50, and 100%: Cash Flows ($) C1 Co -6,750 b. What is the IRR of the project? +4,500 C₂ +18,000 Page 141
3) Fast Machine, Inc. have a Project with the following cash flows. The company evaluates the Project by applying the IRR rule. If the apropriate discount rate is 9 percent, should the company accept the Project? Year 0 1 2 3 Cash Flows (S) -$16,100 7,800 9,100 5.300 I
Suppose you are offered a project with the following cash flows: Year Cash Flows 0 1 2 3 4 $8,800 -4,800 -3,500 -2,600 -1,400 a. What is the IRR of this offer? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % O Accept O Reject ☆ b. If the appropriate discount rate is 13 percent, should you accept this offer? c. If the appropriate discount rate is 25 percent, should you accept this offer?
you have mistake in calculation please check and advise Present value FACTOR =1-(1.11)^-7/0.11 Present value FACTOR =4.7121962646 how you get this answer submitted Question was An investment under consideration has a payback of seven years and a cost of $685,000. Assume the cash flows are conventional. If the required return is 11 percent, what is the worst-case NPV? What is the best case NPV?
Compute the IRR static for Project E. The appropriate cost of capital is 7 percent. (Do not round Intermedlate calculatilons and round your final answer to 2 declmal places.) 5. $180 1. 2. Cash flow -%241,400 009$ IRR % Should the project be accepted or rejected? O accepted O rejected Mc < Prev Type here to search |五 0 DELL F2 F4 F5 F7 9- F10 F12 PrtSc # & 2 24 ) 3. 4. L. 8.
8. By taking n as 30years and using 6% both as MARR and discount rate, compare the below three possible alternatives by using NPV (net present value) and IRR methods, and recommend the best possible alternative. Alternatives Alternative A Types of cashflows Alternative C Initial capital Annual operation and ETB 40,000 maintenance cost Alternative B ЕTB 5,000,000 | ЕТB 7,000,00о |ЕTB 11,000,00 ЕТВ 100,000 ЕТВ 150,000 Annual benefit ЕТB 560,000 ЕТВ 800,000 ETB 1,050,000
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 1 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flows (P2) -$16,000 9,100 9,100 9,100 a. If the discount rate is 10 percent and the firm applies the Net Present Value (NPV) decision rule, which project should the firm accept? b. If the firm applies the profitability index (PI) decision rule, which project should it take?
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2:Year 0123 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100a. If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept?b. If the firm applies the Net Present Value (NPV) decision rule, which project should it take?c. Are your answers in (a) and (b) different? Explain why?
Suppose you are offered a project with the following payments: Year Cash Flows 0 $ 9,800 1 −5,300 2 −4,000 3 −3,100 4 −1,700 a. What is the IRR of this offer? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the appropriate discount rate is 15 percent, should you accept this offer? c. If the appropriate discount rate is 21 percent, should you accept this offer? d-1. What is the NPV of the offer if the appropriate discount rate is 15 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d-2. What is the NPV of the offer if the appropriate discount rate is 21 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
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Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study period in order to maximize E(PW). Using an MARR of 18% per year, the investment required in year 3, and the estimated cash flows for years 4 through 6, determine which decision should be made in year 3. D6 X Y Z High (X) Low (X) High (Y) Low (Y) High High (Z) Low (Z) Low High Low High Investment, Cash Flow, (Year Cash Flow, $1000 Year 3 3) (Year 4) 3 4 $-260,000 $50 $40 $30 $30 $190 $-30 Low $-52,000 $-250,000 The present worth of X is $ The present worth of Y is $ The present worth of Z is $ Select decision branch Y Cash Flow, $1000 (Year 5) 5 $50 $30 $40 $30 $170 $-30 Cash Flow, $1000 (Year 6) 6 $50 $20 $50 $30 $150 $-30 Outcome Probability 0.72 0.28 0.45 0.55 0.7 0.3
Two different alternatives are being compared. Using Net Present Worth Analysis which alternative is best? Use an interest rate of 9%. Alternative Initial Cost A В $ 1,425 $ 2,168 $ 1,325 $ $ Annual Benefit 620 Salvage Value Useful Life (years) 465 $ 897 3 9. A is the best alternative Choose neither alternative Choose either alternative B is the best alternative

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