Question

Dark Skies Observatory is considering several options to purchase a new deep-space telescope. Revenue would be generated from the telescope by selling "time and use" slots to various researchers around the world. Four possible telescopes have been identified in addition to the possibility of not buying a telescope if none are financially attractive. The table below details the characteristics of each telescope. An internal rate of return analysis is to be performed. T1 T2 T3 T4 Useful Life 10 years 10 years 10 years 10 years First Cost $560,000 $980,000 $470,000 $520,000 Salvage Value $65,000 $75,000 $160,000 $135,000 $700,000 Annual Revenue $400,000 $260,000 $280,000 Annual Expenses $150,000 $310,000 $90,000 $140,000 Determine the preferred telescope if MARR is 50%/year.
what is T3 in year 10 and IRR.

Answer 1

T3 in year 10 = year 10 cash flow + salvage value

= (260000-90000) + 75000

= $245,000

IRR:

B13 fx EIRR(B2:B12) A C D E 1 Year 0 2 B cash flow -470000 170000 170000 170000 3 1 4 2 5 3 6 4 170000 7 5 170000 6 170000 8 9 7 170000 10 8 170000 11 9 170000 12 10 245000 13 IRR 34.60%

IRR = 34.60%