### Present Worth Analysis for Investment AlternativesIn this exercise, we will determine the preferable alternative between two investment options using a present worth analysis, with an interest rate set at 10%.#### Data Table:| Criteria | Alternative X | Alternative Y ||------------------|---------------|---------------|| **Initial Cost** | $12,500 | $8,900 || **Annual Benefit** | $6,800 | $2,000 || **Salvage Value** | $5,000 | $8,900 || **Life in Years** | 2 years | 3 years || **MARR (Minimum Attractive Rate of Return)** | 10% | 10% |### Explanation:- **Initial Cost**: This is the upfront investment required for each alternative.- **Annual Benefit**: The expected annual profit generated by each alternative.- **Salvage Value**: The residual value of the investment at the end of its life.- **Life in Years**: The duration over which the investment will generate returns.- **MARR**: The minimum rate of return acceptable for the investment, used as the discount rate for present worth analysis.The goal is to calculate the present worth of each alternative to determine which one offers a higher net present value, making it the preferred option under the given financial conditions.

Present worth = -P+(AR-Am)( P/A,i%,n)+F(P/F,i%,n) where, P is the initial cost, AR is the annual…

Determine the better of the two alternative using the present worth analysis. Use an interest rate of 10%. Alt. X Alt.Y Initial cost $12,500 $8,900 Annual benefit $6,800 $2,000 Salvage value $5,000 $8,900 Life in years 2 years 3 Years MARR 10%

Determine the better of the two alternative using the present worth analysis. Use an interest rate of 10%. Alt. X Alt.Y Initial cost $12,500 $8,900 Annual benefit $6,800 $2,000 Salvage value $5,000 $8,900 Life in years 2 years 3 Years MARR 10%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: payback period reflects and considers the time value of money in some cases Select one: O True O…

A: The payback period is one of the methods of capital budgeting technique. The payback period…

Q: Conduct a ROR analysis for the above information. If MARR= 18%, which project should be chosen and…

A: ROR stands for "Rate of Return." It is a financial metric used to assess the profitability of an…

Q: Select between the two options using the corporate MARR of 15% per year and a future worth analysis…

A: To compare future worth and select the best investment choice, we translate all cash flows into the…

Q: Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost…

A: Given:- Cost to build motel=$80,00,000Average rental rate=$40No.of unit=200 To know:- Build…

Q: Periodic maintenance and rebuild costs is an example about cash inflow estimates. Select one: True…

A: Cash flow: It means the amount transferred into and out of business.

Q: Using present worth analysis, which alternative should be chosen given a planning horizon of 8…

A: Present worth refers to the sum of money in contrast to some FV it will have when it has invested at…

Q: Residential garbage collection in Bumpkin Center is regulated as a local public utility. Trucks cost…

A: Cost of Truck = $275000 Useful Life of Truck = 10 years Salvage Value = $40000 Annual Operating…

Q: A day is spending $19 million on a new sewage system. The expected life of the system is 50 years,…

A: The capitalised cost or worth of a specific project or investment provides an approximation of the…

Q: Empire Limited is trying to decide between two machines which are necessary in their manufacturing…

A: Present Worth is the value that a certain amount in the future will be when discounted with the…

Q: For alternatives with unequal lives, LCM is not needed to analysis different alternatives based on…

A: We are going to use logical practices in Engineering Economics to answer this question.

Q: n case of high interest rate, the best suitable method of analysis is: Select one: a. incremental…

A: Rate of return refers to a relative % method that estimates the yield as a % of investment over the…

Q: Current Attempt in Progress Galvanized Products is considering purchasing a new computer system for…

A: The value that represents the aggregation of all the cash flows related to the current value of the…

Q: Future worth and annual cash flow analysis often require far less computation than rate of return…

A: There are various analytical tools to analyze different types of investment projects in the market,…

Q: Why is it okay to use Incremental IRR between two same life projects that has different first cost…

A: incremental IRR is important to work on the financial returns, with the two competition investment…

Q: The net present value method does not incorporate the time value of money. O True O False

A: Cash flow refers to the movement of money into or out of a business, project, or financial…

Q: QUESTION 10 Save Answer Determine the capitalized cost of an alternative that has a first cost of…

A: (Note:- Since you have posted multiple questions as per our policy we will solve only first question…

Q: If the rate of return on the additional cash flows between the two alternatives is less than the…

A: The incremental IRR is the Calculation of IRR between the two mutually exclusive alternative and it…

Q: Initial cost Annual benefits ROR Life in years Alt. A $15,000 $4,500 15% Alt. B 27,000 7,600 13% 538…

A: Incremental rate of return is a tool of financial analysis which helps investors to compare…

Q: 3. A municipal police department has decided to acquire an unmanned drone for aerial surveillance of…

A: The incremental present worth analysis helps us determine if the project is financially viable. To…

Q: What is the annual worth approach? How is it useful?

A: The annual worth approach can be understood as the equal uniform annual worth of all estimated…

Q: TRUE OR FALSE. If two investments are equal considering the time value of money, then they are said…

A: The concept that depicts that value of money today is considered to be worth more than the value of…

Q: A project with an infinite life has the following details: Initial cost $6 million Annual operating…

A: A capitalized cost is an expense added to the cost basis of a fixed asset on a company's balance…

Q: First Cost Annual Operating Cost Salvage Value Option A $72,000 $8,000 $49,000 after 2 years $12,000…

A: To find the present worth of cost for 7 year period we take following steps for option A : 1 .) We…

Q: How can some economic analysis problems be solved more efficiently by annual-worth analysis?

A: Annual worth analysis can be explained as the equivalent annual standardized value of all estimated…

Q: Project cash flows may be stated in one of two forms. What are they?

A: Cash flow is the sum of money which records receipts and disbursements in a project's financial…

Q: Do a Present Worth Analysis to be able to determine the Alternative chosen from the three Generators…

A: Present worth analysis (PWA) is a method used to determine the present value of future money…

Q: Furnace Furnace Furnace A $450,000 $400,000 Initial investment Annual revenues * Annual cost…

Q: The payback period with i=3% is most nearly. Most nearly number for answer. EOY Cash Flow -$1,000 I…

A: To calculate the payback period with an interest rate of 3%, we need to determine how long it takes…

Q: Margaret has a project with a $28700 first cost that returns $5700 per year over its 12-year life.…

A: Present value is the value of investment in today's dollar. Future value is the value of investment…

Q: A company is considering three alternatives for the installation of the piping a nearby city. Three…

A: Present worth refers to the discounted value of all the future cash flows to present . In above…

Q: What is the Future worth for the following cash flow diagram? If the MARR is 10%, is this a good…

A: here we calculate the future worth of the given cashflow and select the correct option so the…

Q: In case of high interest rate, the best suitable method of analysis is: Select one: O a. future…

A: Future worth analysis, present worth analysis, annual worth analysis and incremental analysis…

Q: Need Asap Illustrate the cashflow diagram and compute for the payback period for a project with the…

A: Given, First Cost = $20,000 Annual Benefits = $8,000 Annual Maintenance = $2,000 in year 1 and then…

Q: Determine the difference between the capitalized cost of the timber and steel penstock for a…

A: Following is the given information: The first cost of the Timber = Php 50,000 The first cost of the…

Q: Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost…

A: Given:-Initial cost=$8,000,000Furnishing=$700,000Annual cost=$800,000MARR=12%To…

Q: Hospital is evaluating the purchase of new office equipment from three vendors. Assume MARR=15% and…

A: A financial term known as "present worth" refers to the value of a quantity of money now, taking…

Q: Galvanized Products is considering the purchase of a new computer system for their enterprise data…

A: Working notes: Initial Cost = $80000 Loan amount = 80,000 x (1/4) = 20,000 interest rate on loan…

Q: TRUE OR FALSE The future worth of a perpetuity from one (1) to ? years is undefined because as ?…

A: The future worth of a perpetuity from one (1) to ? years is undefined because as ? approaches…

Q: Problem #3 Solve for the following: 1) Present worth equivalence 2) Annual worth equivalence spread…

A: 1) PW = 500 x P/F(13%, 4) + 1000 x P/F(13%, 5) + 1500 x P/F(13%, 6) + 2000 x P/F(13%, 7) + 2500 x…

Q: Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life.…

A: The payback period is the amount of time which it takes in order to recover the cost of an…

Q: A company must invest in one of two alternatives. Alternative A Alternative B Initial Cost $712,623…

Q: Consider the following analysis of two alternatives, X & Y: YR X Y…

A: Incremental IRR refers to an approach that is applied to measure if an incremental expenditure…

Q: Two incinerators are being considered by a waste management company. Design A has an initial cost of…

A: In the case of design "A": Initial cost of design "A" = $2500000 Annual operating and maintenance…

Question

### Present Worth Analysis for Investment Alternatives

In this exercise, we will determine the preferable alternative between two investment options using a present worth analysis, with an interest rate set at 10%.

#### Data Table:

| Criteria | Alternative X | Alternative Y |
|------------------|---------------|---------------|
| **Initial Cost** | $12,500 | $8,900 |
| **Annual Benefit** | $6,800 | $2,000 |
| **Salvage Value** | $5,000 | $8,900 |
| **Life in Years** | 2 years | 3 years |
| **MARR (Minimum Attractive Rate of Return)** | 10% | 10% |

### Explanation:
- **Initial Cost**: This is the upfront investment required for each alternative.
- **Annual Benefit**: The expected annual profit generated by each alternative.
- **Salvage Value**: The residual value of the investment at the end of its life.
- **Life in Years**: The duration over which the investment will generate returns.
- **MARR**: The minimum rate of return acceptable for the investment, used as the discount rate for present worth analysis.

The goal is to calculate the present worth of each alternative to determine which one offers a higher net present value, making it the preferred option under the given financial conditions.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Question 2 Full explain this question and text typing work only do not ignore this line
Present worth
Planning to open a branch of a business requires an initial capital of 1000 to rent a place, purchase equipment, etc. After the end of the 10 year evaluation period, all used equipment can be resold for 300. The estimated amount of income and expenditure each year is shown in the following cash flow diagram using Future Worth (FW):
If ERR > MARR, then IRR > ERR > MARR. A) True (B) False
If you could write out the equation once for me to see where the values should go, that would be helpful. Thank you!
If the Savings function is S = -$300 + 0.75Y %3D Then the breakeven level of income is $1200. O True O False
Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $20,500 per year. An emission reduction filter will cost $75,000 and have an expected life of 5 years. Carlisle's MARR is 10%/year. Part a What is the future worth of this investment? $ Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is £10.
Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $16,500 per year. An emission reduction filter will cost $75,000 and have an expected life of 5 years. Carlisle's MARR is 10%/year. Part a What is the future worth of this investment? $
QUESTION 7 for th below two machines and based on AW analysis which machine we should select? MARR-10%. Machine A Machine B First cost, $ 100,000 Annual cost, S/year 7,000 Salvage value, $ Life, years 3 infinite Answer the below question: A-the AW for machine A QUESTION 8 For th below two machines and based on AW analysis which machine we should select? MARR-10% Machine A Machine B First cost, $ 135,982 Annual cost, Siyear 8,740 12.308 Salvage value, $ Life, years 3 infinite Answer the below question: B- the AW for machine B QUESTION 9 C-Based on the AW value you got in the previous 2 questions, which machine we should select? type you explanation below For the toolbar, press ALT+F10 (PC) or ALT-FN-F10 (Mac) B IUS Paragraph M Arial Y 10pt 田饼印园 BE 0) 20,000 9,000 4,000 23,720 4.805- !!! 4
Given cash flows for two alternatives as shown in table below, choose the most attractive alternative if MARR = 8%. Year 0 1 2 3 through ∞ Alt. A -$42K $3.6K $3.6K $3.6K Alt. B -$54K $4.7K $4.7K $4.7K Group of answer choices Alt. A Alt. B Select neither Select either
Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost to build the motel is estimated at $8.000.000; Value Lodges estimates furnishings for the motel will cost an additional $700.000 and will require replacement every 5 years. Annual operating and maintenance costs for the motel are estimated to be $800,000. The average rental rate for a unit is anticipated to be $40/day. Value Lodges expects the motel to have a life of 15 years and a salvage value of $900.000 at the end of 15 years. This estimated salvage value assumes that the furnishings are not new. Furnishings have no salvage value at the end of each 5-year replacement interval. Assuming average daily occupancy percentages of 50%, 60%, 70%, and 80% for years 1 through 4, respectively, and 90% for the 5th through 15th years, a MARR of 12%/year, 365 operating days/year, and ignoring the cost of land, should the motel be built? Base your decision on an internal rate of return analysis.…