Question
In: Accounting
An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment...
An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment at its manufacturing plant in the United Kingdom. One of these alternatives must be selected. The estimated cash flows for each alternative are listed in the below table.
| Alternative A | Alternative B | |
| Capital investment |
£ 20,000 |
£ 38,000 |
|
Annual expenses |
£ 5,500 | £ 4,000 |
| Market value at end of useful life | £ 1,000 | £ 4,200 |
| Useful | 5 years | 10 years |
Assume that the equipment will be needed indefinitely and the firm’s MARR relative to British pound (GBP) is 20% per year.
To compare which environmental protection equipment alternative is better, what assumption do you need to make (Repeatability assumption or Co-terminated assumption)? Hence, analyse which environmental protection equipment alternative should be selected? Use 4 decimal places of the compound interest factors to do the calculation. Show detailed steps of your analysis.
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Solutions
ekkarill92 answered 1 year agoRelated Solutions
An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment...
An American multinational company is now considering two
mutually exclusive alternatives for the environmental protection
equipment at its manufacturing plant in the United Kingdom. One of
these alternatives must be selected. The estimated cash flows for
each alternative are listed in the below table.
Alternative A
Alternative B
Capital investment
£ 20,000
£ 38,000
Annual expenses
£ 5,500
£ 4,000
Market value at end of useful life
£ 1,000
£ 4,200
Useful
5 years
10 years
Assume that the equipment...
An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment...
An American multinational company is now considering two
mutually exclusive alternatives for the environmental protection
equipment at its manufacturing plant in the United Kingdom. One of
these alternatives must be selected. The estimated cash flows for
each alternative are listed in the below table.
Alternative A
Alternative B
Capital investment
£ 20,000
£ 38,000
Annual expenses
£ 5,500
£ 4,000
Market value at end of useful life
£ 1,000
£ 4,200
Useful
5 years
10 years
Assume that the equipment...
An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment...
An American multinational company is now considering two
mutually exclusive alternatives for the environmental protection
equipment at its manufacturing plant in the United Kingdom. One of
these alternatives must be selected. The estimated cash flows for
each alternative are listed in the below table.
Alternative A
Alternative B
Capital investment
£ 20,000
£ 38,000
Annual expenses
£ 5,500
£ 4,000
Market value at end of useful life
£ 1,000
£ 4,200
Useful
5 years
10 years
Assume that the equipment...
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these alternatives must be selected. a. Which environmental
protection equipment alternative should be selected? The firm's
MARR is 20% per year. Assume the equipment will be needed
indefinitely. Assume repeatability is appropriate for this
comparison. b. Assume the study period is shortened to five years.
The market value of Alternative B after five years is estimated to
be $16000. Which alternative would...
A manufacturing company is considering two mutually exclusive alternatives. Alternatives &nb
A manufacturing company is considering two mutually
exclusive alternatives.
Alternatives
Alt. A Alt. B
Initial
cost
$ 42,500 $ 70,000
Annual costs
O &
M
$ 6,000 $ 4,000
Annual savings $
18,500 $ 20,000
Residual value $
12,000 $ 25,000
Shelf
life
3 years 6 years
What would be the "advantage" in annual terms of
Alternative B versus Alternative A at 15% interest?
Select one:
a. $ 3020
b. $ 3500
c. $ 7436
d. Alternative B does...
A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm's...
A firm is considering two mutually exclusive investment
alternatives, both of which cost $5,000. The firm's expected rate
of return is 12 percent. The cash flows associated with each
investment are:
Year
Investment A
Investment B
1
$ 2000
$ 1000
2
$1500
$ 1500
3
$1500
$ 2000
4
$1000
$3000
For each alternative calculate the payback period, the net present
value, and the profitably index. Which alternative (if any) should
be selected?
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the...
Two mutually exclusive alternatives are bring considered: A and
B. Both alternatives cost $1,200 at the present. However, the
pattern of revenue from them is different. Alternative A has the
potential to bring more revenues later in the project life. The
expected revenues of alternative A are: $350, $500, and $850 by the
ends of years one to three, respectively. Alternative B promises
more immediate cash inflow which is expected to diminish with time:
$750, $300, and $100 by the...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the...
Two mutually exclusive alternatives are bring considered: A and
B. Both alternatives cost $1,200 at the present. However, the
pattern of revenue from them is different. Alternative A has the
potential to bring more revenues later in the project life. The
expected revenues of alternative A are: $350, $500, and $850 by the
ends of years one to three, respectively. Alternative B promises
more immediate cash inflow which is expected to diminish with time:
$750, $300, and $100 by the...
A firm is considering three mutually exclusive alternatives aspart of a production improvement program. The...
A firm is considering three mutually exclusive alternatives as
part of a production improvement program. The alternatives are as
follows:A
B
CInstalled Cost
($)
10,000
15,000
20,000Uniform Annual benefit ($)
1,625
1,625
2000Useful life
(Years)
20
20
20 For each alternative, the salvage value is zero. The MARR is 6%.
Which alternative should be selected based on the INCREMENTAL
ANALYSIS method?
A firm is considering three mutually exclusive alternatives as part of a production improvement program. The...
A firm is considering three mutually exclusive alternatives as
part of a production improvement program. The alternatives are:
A
B
C
installed cost
$10,000
$15,000
$20,000
annual benefit
1,625
1,530
1,890
useful life (yrs)
10
20
20
The salvage value of each alternative is zero. At the end of 10
years, Alternative A could be replaced with another A with
identical cost and benefits.
(a) which alternative should be selected if interest is 6%?
(b) 3%
(c) if there is...
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