Question

0.10. In an automotive parts plant, an engineering team is analyzing an improvement project to increase the productivity of a flexible manufacturing center. The estimated net cash flows for the three feasible alternatives being compared are shown in the following table. The analysis period is four years, and MARR for capital investments at the plant is 12% per year. Using the ERR method, which alternative should be selected? (Assume, external reinvestment rate per period is 18%) Alternatives End of Period AB $700,000 - $750,000 230,000 - $20,000 280,000 300,000 300.000 335.000 320.000 300.000 -8775,000 250.000 300,000 320,000 350.000

Answer 1

Select Alternative A since it has highest ERR

Year	A	B	C
0	-700000	-750000	-775000
1	230000	-20000	250000
2	280000	300000	300000
3	300000	335000	320000
4	320000	300000	350000
ERR	19.80%	9.73%	19.04%

Workings

AutoSave o 9.3HD Book1 - Excel Sign in File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do - 11 A = = 0 Calibri BIU - B -A A = E insert - Delete - Format - 0 X Share Comments AY O Sort & Find & Filter - Select Editing General 3$ -% to Number Paste La- - . Conditional Format as Formatting Table - Styles Cell Styles Clipboard Font Alignment t o Cells - X -700000 Year 0 1 2 A -700000 230000 280000 300000 320000 |-750000 -20000 300000 335000 300000 -775000 250000 300000 320000 350000 4 MIRR =MIRR(C2:06,12%,18%) =MIRR(D2:06,12%, 18%) =MIRR(E2:E6,12%,18%) Sheet1 Sheet2 Sheet3 Sheet4 Sheets Sheet6 Sheet7 Sheet8 Sheet9 Ready = + 100% 3 ADUENG 2:39 PM 0