Question

3. If a time zero cost of $300,000 is incurred for equipment replacement, an existing project A is expected to generate $450,000 before-tax profits each year for year 1 through year 10. Two alternatives are being considered for improvement (project B) and improvement combined with expansion (project C) with projected costs and revenues as shown on the time diagrams. All dollar values are expressed in thousands of dollars A) 0 2 10 300 450 450 450 B) 0 2 10 -900 550 550 550 0 2 10 750 850 850 -1,200 800 For a minimum rate of return of 15% and considering the alternatives to be mutually exclusive, determine whether project A, B, or C is economically best using ROR, NPV, and PVR. Then increase the minimum ROR to 25% from 15% over the entire 10-year evaluation life and reevaluate the alternatives using any valid analysis