Question

I am needing help to get the answer for the questions in red circle.

FastBits Electronic Company Sdn. Bhd. is evaluating new precision inspection devices to help verify package quality. The manager has obtained the following bids from four companies. All devices have a life of five years and a minimum attractive rate of return of 4%. The alternatives are mutually exclusive Description Company A Company B Company C Company D Initial Cost (RM) 490000 116000520000200000 Annual Costs (RM) 900 Net Cash Flows (RM) 122500 32480 IRR Determine the annual benefits of the devices from all four companies Company A 123400 Company B: 44480 Company C: 153000 12000 23000 130000 79% 9000 46200 5% 79% 12.4% Format: 669800 Format:32580 Format: 929000 Format: 93300 pany D: 55200 Device from which company has the highest annual benefit? c FastBits should reject the bid from which company based on the given individual IRR? D Using incremental internal rate of return analysis, from which company, if any, should the manager purchase the new precision inspection device? Use trial and error method with 4% and 10% interest rates. Understood? (Y/N) Y Step 1- Eliminate Company D Step 2 - Rank Company from no 1-2-3A-B-C Step 4 - Incremental IRR first comparison 5.8 Step 5 - Remove Company from selection B Repeat Step 4 - Incremental IRR 2nd comparison 6.7 Step 5 - Choose Company c Demonstrate that the same company selection would be made with proper application of the Present Worth (PW) method PW Company A 55346 PW Company B 28594 PW Company C 58734 PW Company D 5673 Thus, choose Company c Format: A Format: A Format:A FormatA Formät: X-X-X X Format:7.2 Format: A Format: 2.5 Format:A Format: 49479 Format: 23522 Format: 35537 Format: 8932 Format : A

Answer 1

Incremental IRR is calculated by calculating incremental cash flow and then calculating the IRR of that cash flow. Also projects are sorted in ascending order of their initial cost