Compare the following two alternatives by the IRR method, given MARR of 6%/year. First find if theyare feasible and then compare them with the incremental rate of return (AROR).Alt.Construction cost $Benefits $/yr Salvage $Service Life (yrs)A410,00055,00020,00011B250,00035,00010,00011

The internal rate of return (IRR) is a discounted cash flow method for calculating the rate of…

Answered: Compare the following two alternatives…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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6. Compare the following three alternatives by the IRR method, given MARR of 6%/year. First find if they are feasible and then compare them with the incremental rate of retum method (AROR). Construction cost S Benefits S/yr Salvage S Alt. Service Life (yrs) 510,000 145,000 -10,000 775.000 155,000 15,000 1,075,000 165,000 20,000 6.
The following two alternatives are given. Data A B. First Cost $8,200 $5,600 Annual Cost $1,000 $800 Annual Benefit $2,700 $2,100 Life, Years 7. Salvage Value $2,800 $1,000 Assume that MARR is 15%. Use the incremental rate of return analysis to determine which alternative (A or B) one should choose. Find the AIRR, or a range of AIRR. O 10% O 10-12% O 12-15% O > 15%
Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (AROR) analysis. MARR = 10%. A B C D $15,000 $21,200 $36,000 45,000 1,600 700 400 1,000 First cost O &M Cost/ year Benefit/year 8,000 9,000 13,000 Salvage value 3,000 4,600 6,000 Life in years 4 15,000 10,000
For the following alternatives compute the Delta B/C ratio of Alternative C minus Alternative B. Use 11% as MARR. (Remember for our convention, salvage value is a minus cost.) Project Initial Investment Annual Benefit Salvage Value Useful Life 2.13 2.98 1.18 0.99 1.28 A -1500 350 320 5 B -2000 500 610 6 -2500 600 820 7 D -5200 850 2300 9
For the following alternatives compute the Delta B/C ratio of Alternative D minus Alternative A. Use 11% as MARR. (Remember for our convention, salvage value is a minus cost.) Project A B D Initial Investment -1500 -2000 -2500 -5200 Annual Benefit 350 500 600 850 Salvage Value Useful Life 320 610 820 2300 5 6 7 9
Two investment opportunities are as follows: A B First cost $150 $115 Uniform annual benefit $26 $20 End-of-useful-life salvage value $O SO Useful life, in years 10 10 If the MARR is 13%, which alternative should be selected?
Using (incremental) benefit-cost ratio analysis OR (incremental) internal rate of return, determine which of the following three mutually exclusive alternatives should be selected. Each alternative has a 6-year useful life. Assume the MARR is 6%. First Cost Uniform Annual Benefit Salvage Value $560 $140 $40 A $340 $100 0 B $125 $40 0 C
For the following alternatives compute the Delta B/C ratio of Alternative D minus Alternative A. Use 11% as MARR. (Remember for our convention, salvage value is a minus cost.) Project Initial Investment A -1500 -2000 -2500 -5200 Annual Benefit 350 500 600 850 Salvage Value Useful Life 320 610 820 2300 O1.27 1.18 O 1.46 O 1.73 O 0.92
1. Data for two alternatives are given in the table below. Determine the X cost of alternative B so that the two alternatives will be equally desirable. Assume an interest of 11%. Use BCR analysis. ALTERNATIVE A Cost 9500 Salvage value 1000 1600 Annual benefit 2800 3700 Life (years) 12
1. Determine the B/C ratio for the following project First Cost P100, 000 Project life, years 5 Salvage value Annual benefits P10, 000 P60, 000 Annual O and M Interest rate, % P22, 000 15 Ans: B/C = 1.16 2. Data for two alternatives are as follows: Alternatives A В Investment Р35, 000 P50, 000 Annual benefits P20, 000 P25, 000 Annual O and M Estimated life, years Net salvage value Ре, 450 P13, 830 4 8. Р3, 500 Using an interest rate of 20%, which alternative should be chosen? Ans: Alternative A is referred over Alternative B
Use the incremental ROR analysis to select the one economically best project for a 10% MARR. Project A B C D Initial Cost -200,000 -275,000 -190,000 -350,000 Salvage Value +22,000 +35,000 +19,500 +42,000 Life 5 5 5 5
Use Rate of Return Analysis to determine whether Alternative A or B should be chosen. Assume the MARR is 6% per year, compounded annually. Initial Cost Annual Benefit Salvage Value Useful Life (yrs) Alternative A 700 170 0 5 Alternative B 1189 270 0 5 Alternative B should be chosen, because the incremental rate of return of B-A is 0.75%, which is less than the MARR Alternative B should be selected because its rate of return is 4.39%, which is less than the MARR Alternative A should be selected because its rate of return is 6.84%, which is greater than the MARR Alternative A should be chosen, because the incremental rate of return of B-A is 0.75%, which is less than the MARR

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