Question

Three mutually exclusive investment alternatives are being considered. The estimated cash flows for each wernative we given below. The study period is 30 years and the firm's MARR is 6% per year. Assume repeatability and reinvestment of positive cash balances at 6 per year a. What is the simple payback period for Alternative 1? b. What is the annual worth of Alternative 2? c. What is the IRR of the incremental cash flows of Alternative 2 compared to Aheative 1? d. Which alternative should be selected Click the icon to view the datatable for the additional information about the alternatives. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 6% per year The simple payback period for Alternative is years. (Round up to the nearest whole number) More Info Capital Investment Annual Costs Annual Revenues Market Value at End of Useful Life Useful Life - $15.000 320.000 - $33.000 3500 - $50.000 - $27.000 3. Осо ROCO 6 years 5 years 5 years Print Done

Answer 1

Annual net revenu = $28,000 - $15000 = + 13000 simple taken to : payback period is number of years. recover initial wst. (Annual revenue), simple payback Period & initial cost Simple payback period 7 3oooo 13000 7 2.33 ~ 3 yean simple payback period = 3 years. (6 PW Annual worth of alternative 2 = (-60000 + 20000 (PIA, 67,5) + 8000 (PIF,6%,5)) [1+ (P/F, 6%,0) + CP/F, 67, 10) + CP/F, 6%, 15) +CP/F, 6%, 200+ (P/F, 6%, 25)] = (- 60000+ 20000 (4.212) + 8oooco.2483)) (lto.3423 + 0.5504+ 0.4173 + 0.3118 + 0.2330) = 3.2648 (30218.4) = $ 98657.03

Annual worth of alternative pw of alternative CPIA, 6%,30 91657.03 13.765 $7167.23 cash - Incremental Alt. 1 how Alt.I- Alt. 2 Alt. 2 3000J Incremental initial investrient lorre Annual cast 1800 I Annual revenue - Sisa Valmat useful life Incremental IRR 2550o (P/A, 5) = 4800 incremental . CP/Air, 5) = 1.882 irr = 42% MARK = 6%. Alternative & 1 to be chosen over Alternative a @