Question

A waste disposal company is considering the replacement of one of its aging trucks. The key parameters of the three trucks under scrutiny are provided below.
Parameters	Delta	Epsilon	Zeta
1. Initial Cost ($)	250,000	375,000	450,000
2. Revenues ($)	230,000 at EOY1 increasing by 2.5% annually thereafter	195,000 at EOY1 increasing by 3,000 annually thereafter	235,000 at EOY1 decreasing by 1% annually thereafter
3. Operating costs ($)	140,000 at EOY1 decreasing by 2,000 annually thereafter	125,000 at EOY1 decreasing by 2% annually thereafter	EOY1-EOY4 = 125,000; EOY5-EOY8 = 135,000 EOY9-EOY12 = 170,000 EOY13-EOY16 = 190,000
4. End-of-life salvage value ($)	-20,000	7,000	-20,000
5. Useful life (years)	4	8	16
EOY = End-of-year Industry Standard = 4 years MARR = 10%

1. Delta’s Net Future Worth (NFW) (rounded to the nearest $100) of
   a) $78,800; b) $81,900; c) $82,900; d) $84,300.

2. Epsilon’s Net Present Worth (NPW) (rounded to the nearest $100) is
   a) $89,000; b) $93,700; c) $94,100; d) $95,200.

3. Zeta’s Net Future Worth (NFW) (rounded to the nearest $100) after 16 years is

a) $678,900; b) $698,600; c) $709,100; d) $743,300.

4. Delta’s Annual Equivalent Worth (AEW) (rounded to the nearest $100) is
   a) $17,700; b) $18,500; c) $18,900; d) $19,200.

5. Zeta’s AEW (rounded to the nearest $100) over 30 years (it was repeated several times) is

a) $19,200; b) $19,700; c) $20,100; d) $21,800.

6. The best truck based on the NFW method is
   a) Delta; b) Epsilon; c) Zeta.

7. The best truck based on the AEW method is
   a) Delta; b) Epsilon; c) Zeta.

8. Based on the simple payback method, Delta’s recovery period (to the nearest half or full year) is

a) 2.5; b) 3.0; c) 3.5; d) 4.0.

9. Based on the simple payback method, Epsilon’s “project balance” after 2 years (rounded to the nearest $100) is

a) $-229,500; b) $-155,900; c) $-59,100; d) $98,800.

10. Based on the discounted payback method, Epsilon’s recovery period (to the nearest half or full year) is

a) 5.0; b) 6.0; c) 6.5; d) 7.5.

11. Based on the discounted payback method, Epsilon’s “project balance” after 3 years (rounded to the nearest $100) is

a) $-296,300; b) $-250,400; c) $123,400; d) $129,800.

12. Based on the simple payback method, Zeta’s recovery period (rounded to the nearest half or full year) is

a) 3.5; b) 4.0; c) 4.5; d) 5.5.

13. The best truck based on the simple payback method is
    a) Delta; b) Epsilon; c) Zeta.

14. Delta’s benefit/cost (B/C) ratio (second decimal; no rounding) is
    a) 0.98; b) 1.03; c) 1.08; d) 1.10.

15. Zeta’s benefit/cost (B/C) ratio (second decimal; no rounding) is
    a) 0.99; b) 1.02; c) 1.06; d) 1.09.

16. The incremental B/C ratio (second decimal; no rounding) between the Delta and Epsilon trucks is

a) 0.90; b) 0.99; c) 1.03; d) 1.08.

17. The incremental B/C ratio (second decimal; no rounding) between the Epsilon and Zeta trucks is

a) 0.98; b) 1.05; c) 1.07; d) 1.11.

18. Delta’s Internal Rate of Return (IRR) (first decimal; no rounding) is
    a) 18.1%; b) 19.8%; c) 20.8%; d) 21.1%.

19. Epsilon’s Internal Rate of Return (IRR) (first decimal; no rounding) is
    a) 16.0%; b) 16.8%; c) 17.0%; d) 17.3%.

Answer 1

(1) Delta's NFW = $81,900

DELTA
Year	Revenue	Cost	Net Benefit	FV Factor@10%	Compounded Net Benefit
	(A)	(B)	(C)=(A)-(B)	(D)	(C)x(D)
0		2,50,000	-2,50,000	1.4641	-3,66,025
1	2,30,000	1,40,000	90,000	1.3310	1,19,790
2	2,35,750	1,38,000	97,750	1.2100	1,18,278
3	2,41,644	1,36,000	1,05,644	1.1000	1,16,208
4	2,27,685	1,34,000	93,685	1.0000	93,685
				NFW ($) =	81,935

(2) Epsilon's NPW = $89,000

EPSILON
Year	Revenue	Cost	Net Benefit	PV Factor@10%	Discounted Net Benefit
	(A)	(B)	(C)=(A)-(B)	(D)	(C)x(D)
0		3,75,000	-3,75,000	1.0000	-3,75,000
1	1,95,000	1,25,000	70,000	0.9091	63,636
2	1,98,000	1,22,500	75,500	0.8264	62,397
3	2,01,000	1,20,050	80,950	0.7513	60,819
4	2,04,000	1,17,649	86,351	0.6830	58,979
5	2,07,000	1,15,296	91,704	0.6209	56,941
6	2,10,000	1,12,990	97,010	0.5645	54,760
7	2,13,000	1,10,730	1,02,270	0.5132	52,481
8	2,23,000	1,08,516	1,14,484	0.4665	53,408
				NPW ($) =	88,420

(3) Zeta's NFW = $709,100

ZETA
Year	Revenue	Cost	Net Benefit	FV Factor@10%	Compounded Net Benefit
	(A)	(B)	(C)=(A)-(B)	(D)	(C)x(D)
0		4,50,000	-4,50,000	4.5950	-20,67,738
1	2,35,000	1,25,000	1,10,000	4.1772	4,59,497
2	2,32,650	1,25,000	1,07,650	3.7975	4,08,801
3	2,30,324	1,25,000	1,05,324	3.4523	3,63,605
4	2,28,020	1,25,000	1,03,020	3.1384	3,23,322
5	2,25,740	1,35,000	90,740	2.8531	2,58,892
6	2,23,483	1,35,000	88,483	2.5937	2,29,501
7	2,21,248	1,35,000	86,248	2.3579	2,03,368
8	2,19,035	1,35,000	84,035	2.1436	1,80,137
9	2,16,845	1,70,000	46,845	1.9487	91,288
10	2,14,677	1,70,000	44,677	1.7716	79,147
11	2,12,530	1,70,000	42,530	1.6105	68,495
12	2,10,404	1,70,000	40,404	1.4641	59,156
13	2,08,300	1,90,000	18,300	1.3310	24,358
14	2,06,217	1,90,000	16,217	1.2100	19,623
15	2,04,155	1,90,000	14,155	1.1000	15,571
16	1,82,114	1,90,000	-7,886	1.0000	-7,886
				NFW ($) =	7,09,137

(4) Delta's AEW = $17,700

Delta's AEW = Delta's NFW / F/A(10%, 4) = $81,935 / 4.6410** = $17,655

**From F/A Factor table

NOTE: As per Answering Policy, 1st 4 questions are answered.