Homework Answers
We will do an incremental PW analysis. The base alternative is one with the lowest investment so that is alternative A. (Note: Usually, we start by comparing the lowest investment alternative with the do-nothing alternative but here the PW of alternative A is positive, so do-nothing alternative is rejected.)
Rule: If NPV of incremental cash flows is positive, choose the higher investment alternative.
If NPV of incremental cash flows is negative, choose the lower investment alternative.
Step 1: We begin by comparing A with B.
| Formula | A | B | Formula | Incremental cash flows (ICF) | |
| Capital investment (CI) | 12000 | 14400 | CI(B)-CI(A) | 2400 | |
| Net annual income (NAI) | 2500 | 3050 | NAI(B)-NAI(A) | 550 | |
| (P/A, MARR, n) - CI where A = NAI | PW | 419.10 | 751.30 | PW(B)-PW(A) | 332.20 |
Decision: Since PW is positive, B is selected.
Step 2: Compare B with C.
| Formula | B | C | Formula | Incremental cash flows (ICF) | |
| Capital investment (CI) | 14400 | 16250 | CI(C)-CI(B) | 1850 | |
| Net annual income (NAI) | 3050 | 3620 | NAI(C)-NAI(B) | 570 | |
| (P/A, MARR, n) - CI where A = NAI | PW | 751.30 | 1732.86 | PW(C)-PW(B) | 981.55 |
Decision: Since PW is positive, C is selected.
Step 3: Compare C with D.
| Formula | C | D | Formula | Incremental cash flows (ICF) | |
| Capital investment (CI) | 16250 | 20000 | CI(C)-CI(B) | 3750 | |
| Net annual income (NAI) | 3620 | 4400 | NAI(C)-NAI(B) | 780 | |
| (P/A, MARR, n) - CI where A = NAI | PW | 1732.86 | 1857.61 | PW(D)-PW(C) | 124.76 |
Decision: Since PW is positive, D is selected.
Alternative D is the winner.
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You have been presented with 4 investment opportunities. You will receive an income on each investment...
You have been presented with 4 investment opportunities. You will receive an income on each investment...
You have been presented with 4 investment opportunities. You will receive an income on each investment for the next 8 years. MARR is 12% for your personal investments. Using an incremental analysis, which alternative should be chosen? The table below includes initial investment, net annual income, and IRR ch alternative. I would recomment to use incremental PW. however you can use your preferred method. A Capital investment $12,000 B $14,400 Alternative C D $16,250 $20,000 Net annual income $2,500 $3,050...
You have been presented with 4 investment opportunities. You will receive an income on each investment...
You have been presented with 4 investment opportunities. You will receive an income on each investment for the next 8 years. MARR is 12% for your personal investments. Using an incremental analysis, which alternative should be chosen? The table below includes initial investment, net annual income, and IRR ch alternative. I would recomment to use incremental PW. however you can use your preferred method. A Capital investment $12,000 B $14,400 Alternative C D $16,250 $20,000 Net annual income $2,500 $3,050...
in the incremental analysis question, how did we calculate the IRR of these two alternatives (C-A)? can you show it to...
in the incremental analysis question, how did we calculate the
IRR of these two alternatives (C-A)? can you show it to me step by
step?
Solution The next largest investment is in Alternative C, so examine the incremental investment of C over A. In the table below the IRR of C-A is shown. Alternative C- A Capital $12,000 $14,400 $2,400 investment $2,500 $3,050 $550 Net annual ncome 13.48% 15.86% IRR 12.99% 15.86% > MARR, so Alternative C "wins."
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You have been presented with 4 investment opportunities. You will receive an income on each investment for the next 8 years. MARR is 12% for your personal investments. Using an incremental analysis, which alternative should be chosen? The table below includes initial investment, net annual income, and IRR ch alternative. I would recomment to use incremental PW. however you can use your preferred method. A Capital investment $12,000 B $14,400 Alternative C D $16,250 $20,000 Net annual income $2,500 $3,050...
You have been presented with 4 investment opportunities. You will receive an income on each investment for the next 8 years. MARR is 12% for your personal investments. Using an incremental analysis, which alternative should be chosen? The table below includes initial investment, net annual income, and IRR ch alternative. I would recomment to use incremental PW. however you can use your preferred method. A Capital investment $12,000 B $14,400 Alternative C D $16,250 $20,000 Net annual income $2,500 $3,050...
in the incremental analysis question, how did we calculate the
IRR of these two alternatives (C-A)? can you show it to me step by
step?
Solution The next largest investment is in Alternative C, so examine the incremental investment of C over A. In the table below the IRR of C-A is shown. Alternative C- A Capital $12,000 $14,400 $2,400 investment $2,500 $3,050 $550 Net annual ncome 13.48% 15.86% IRR 12.99% 15.86% > MARR, so Alternative C "wins."
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how do you find the incremental IRR?
You are the President of AMT Enterprises. You have the opportunity to expand your product line to include a new semi-conductor wafer fabrication line. In order to produce the new wafer, you must invest in a new production process. In addition to doing nothing (DN), two mutually exclusive processes are currently available to produce the wafer. Should you produce this new wafer? In other words, which, if either, of the alternative processes should...
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