Question

In: Accounting

A company has three project alternatives as follows. Project                        A         &nbsp

A company has three project alternatives as follows.

Project                        A                                B                                 C

First Cost                    $39,000                       $20,000                       $31,000

Salvage Value             $2,000                         $4,000                         $6,000

Annual Maintenance   $1,200                        $1,600                         $800

Annual Income           $18,800                       $14,400                       $16,200

Useful Life (years)      6                                  3                                  5

a.       Utilize the present worth analysis to help the company to select the best project assuming that these projects are mutually exclusive and the interest rate is 10%?

b.      Utilize the annual worth analysis to evaluate these mutually exclusive projects with an interest rate of 12%.

c.       If these projects are independent, utilize the RoR (IRR) analysis to check which project(s) is worthy assuming that the MARR of the company is 15%.

d.      If these projects are independent, utilize the EROR analysis to check which of these project is worthy. Assuming that the interest rate of investment is 13% and the interest rate of borrowing is 8%.

Solutions

Expert Solution

c. All Projects have IRR greater than 15% (A - 35.7%, B 46.7%, C 42.7%)


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