Question

FastBits Electronic Company Sdn. Bhd. is evaluating new precision inspection devices to help verify package quality. The manager has obtained the following bids from four companies. All devices have a life of five years and minimum attractive rate of return of 6%. The alternatives are mutuallv exclusive DescriptionCompany A Company B Company C Company D Initial Cost (RM)420000 Annual Costs (RM) 900 Net Cash Flows (RM) 105000 IRR 100000 12000 28000 12 .4% 570000 23000 142500 79% 200000 9000 46000 4.8% 79% Determine the annual benefits of the devices from all four companies Company A: 105900 Company B: 40000 Compan Company D: 55000 Device from which company has the highest annual benefit? D FastBits should reject the bid from which company based on the given individual IRR? D Using incremental internal rate of return analysis, from which company, if any, should the manager purchase the new precision inspection device? Use trial and error method with 6% and 12% interest rates. Understood? (Y/N) Y Step 1- Eliminate Company D Step 2-Rank Company from no 1-2-3 C-A-B Step 4 - Incremental IRR first comparison 8.1 Step 5 - Remove Company from selection A Repeat Step 4 - Incremental IRR 2nd comparison Step 5 - Choose Company Demonstrate that the same company selection would be made with proper application of the Present Worth (PW) method PW Company A 22302 PW Company B 17947 PW Company C 30267 PW Company D -6230 Thus, choose Company Format : 603700 Format: 40000 Format: 253500 Format : 66000 y C: 165500 Format:A Format:A Format:A Format: A Format X-X-X Format : 5.8 Format : A Format : 94902 Format : 52932 Format: 90698 Format: -3320 X Format : A

Answer 1

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