Question

Year Alt. 1 -$1000 + 1500 Alt.2 -$2000 + 2800 Incremental Alt.2 - Alt. 1 -$1000 + 1300 7. Excel Problems: Which alternative you choose based on the incremental analysis? Pls do this in excel. Machine Machine X $700 Initial Cost $200 Uniform annual benefit Salvage value Useful life, in years 8. A 401(k) is invested in stocks. On September 13, 2016 $1500 was deposited & another $2200 on June 7, 2017. If account worth $3840 on August 7, 2017, what annual rate of return has been earned? Pls do this in excel using XIRR function.

Answer 1

7. In the absence of discount rate, the time value of money is ignored.

2 3 8 9 10 11 -200 95 95 95 95 95 Alternative Time Initial Cost Uniform annual benefit Salvage cost Total benefit Initial Cost Uniform annual benefit Salvage cost Total benefit 95 50 145 95 95 95 95 95 0 0 0 0 0 -200 -700 12 Total -200 570 50 0 420 -700 120 1440 150 150 270 890 120 120 120 120 120 120 120 120 120 120 120 -700 120 120 120 120 120 120 120 120 120 120 120 -500 25 25 25 25 25 -25 120 120 120 120 120 270 470 Net incremental benefit of Y over X Since, the total net incremental benefit of Y over X is positive, alternative Y should be chosen.

50 Alternative Time Initial Cost Uniform annual benefit Salvage cost Total benefit Initial Cost Uniform annual benefit Salvage cost Total benefit Total -200 =SUM(C3:03) 95 95 95 95 95 =SUM(C4:04) =SUM(C5:05) =SUM(C3.C5) SUM(D3:05) SUM(E3:05) SUM(F3:F5) SUM(G3:55) SUM(H3:H5) SUM(13:15) SUM(13:15) SUM(K3:K5) SUM(L3:15) SUM(M3:M5) ESUM(N3:N5) =SUM(03:05) =SUM(C6:06) -700 =SUM(C7:07) 120 120 120 120 - 120 120 120 120 120 120 120 120 =SUM(C8:08) 150 =SUM(09:09) ESUM(C7:09) =SUM(07:09) ESUM(E7:59) ESUM(F7:F9) =SUM(G7:59) ESUM(H7:H9) =SUM(17:19) =SUM(17:19) =SUM(K7:59) ESUM(L7:19) =SUM(M7:M9) =SUM(N7:N9) =SUM(07:09) SUM(C10:010 =D10-06 =E10-E6 =F10-F6 =G10-G6 =H10-H6 =110-16 = 10-16 =K10-K6 =L10-L6 M10-M6 -N10-N6 =010-06 -SUM(C12:017 Net incremental benefit =C10-C6 of Y over X

8.

Annual rate = XIRR = 8.24%

Time 9/13/2016 6/7/2017 8/7/2017 XIRR Cash-flows $1,500 Cash is deposited, positive sign $2,200 Cash is deposited, positive sign ($3,840) The value of money at this time and this much cash can be withdrawn, negative sign 8.244%

Formula sheet:

Time 2 42626 3 42893 4 42954 5 Cash-flows 1500 2200 -3840 =XIRR(B2:B4, A2:A4) XIRR