Question
In: Economics
Consider the following two mutually exclusive cost alternatives: Alternative A Alternative B Capital Investment $8,000 $16,000...
Consider the following two mutually exclusive cost alternatives:
|
Alternative A |
Alternative B |
|
|
Capital Investment |
$8,000 |
$16,000 |
|
Annual Expenses |
$3,500 |
$3,400 |
|
Useful life |
8 years |
12 years |
|
Market value at the end of useful life |
0 |
$3,000 |
Given MARR is 10% per year, answer the following:
- Assuming Repeatability applies, determine which alternatives should be selected.
b. For a study period of 12 years, and assuming repeatability does not hold for the Alternative A consider there will be an annual contracting cost of $ 7,000 in the end of 9th, 10th, 11th and 12th year and still no market value for A, determine which alternative should be selected
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
Data for two mutually exclusive alternatives are given below. Alternative A Alternative B Initial Cost $4,000...
Data for two mutually exclusive alternatives are given
below.
Alternative A
Alternative B
Initial Cost
$4,000
$3,000
Annual Benefits (beginning at the end of year 1)
$1,000
$600
Annual Costs (beginning at the end of year 1)
$300
$100
Salvage Value
$500
$0
Useful Life (years)
5
10
Compute the net present worth for each alternative and choose
the better alternative. MARR = 6%
A. None can be chosen
B. Alternative A
C. Alternative B
D. Any alternative can be...
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...
1.) Consider the following two mutually exclusive alternatives. A B Cost Rs. 4,000 Rs. 6,000 Uniform...
1.) Consider the following two mutually exclusive
alternatives.
A B
Cost Rs. 4,000 Rs. 6,000
Uniform annual benefit Rs. 640 Rs. 960
Useful life (years) 20 20
Using a 15% interest rate, determine which alternative should be
selected
based on the future worth method of compa rison.
2.) Due to increasing awareness of customers, two different
television
manufacturing companies started a marketing war. The details
of
advertisements of the companies are as follows:
Brand X Brand Y
Selling price of...
A firm has two $1,000, mutually exclusive investment alternatives with the following cash inflows. The cost...
A firm has two $1,000, mutually exclusive investment
alternatives with the following cash inflows. The cost of capital
is 6 percent. Year Cash Inflow A B 1 $175 $1,100 2 175 - 3 175 - 4
175 - 5 175 - 6 175 - 7 175 - 8 175 - a. What is the internal rate
of return on each investment? Which investment should the firm
make? b. What is the net present value of each investment? Which
investment should...
Consider the following three mutually exclusive investment project alternatives (A, B, C). Use the annual worth...
Consider the following three mutually exclusive investment
project alternatives (A, B, C). Use the annual worth
analysis (AW) to determine the best investment alternative
assuming MARR=15%.
Project
name:
A
B
C
Cash Flow (Year
0):
-200,000
-300,000 -400,000
Cash Flow (Year
1-N)
+150,000
+180,000 +150,000
Salvage value at year
N:
+30,000
+50,000
+60,000
Project Life
(N):
2 years
3 years
6 years
Two mutually exclusive cost alternatives, Machine A and Machine B, are being evaluated. Given the following...
Two mutually exclusive cost alternatives,
Machine A and Machine B, are being evaluated.
Given the following time events and incremental cash flow, if
the MARR is 12% per year, which alternative (Machine A or Machine
B) should be selected on the basis of the incremental rate of
return analysis? Assume Machine B requires the extra $10,000
initial investment. (You can use Excel).
Year
Incremental Cash Flow ($)
(Machine B - Machine A)
0
-10,000
1 - 4
1,300
5...
Two mutually exclusive alternatives, A and B (both MACRS-GDS 5 year property), are available. Alternative A...
Two mutually exclusive alternatives, A and B (both MACRS-GDS 5
year property), are available. Alternative A requires an original
investment of $100,000, has a useful life of 6 years, annual
operating costs of $2,500, and a salvage value at the end of year k
given by $100,000 (0.70)k. Alternative B requires an
original investment of $150,000, has a life of 8 years, zero annual
operating costs, and a salvage value at the end of year k given by
$150,000(0.80)k. The...
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?
Consider these two alternatives. Alternative 1 Alternative 2 Capital investment ? $4400 ? $6400 Annual revenues...
Consider these two alternatives.
Alternative 1 Alternative 2
Capital investment ? $4400 ? $6400
Annual revenues ?$1450 ?$1950
Annual expenses ?$370 ?$510
Estimated market value ?$850 ? $1250
Useful life 9 years 12 years
a. Suppose that the capital investment of Alternative 1 is known
with certainty. By how much would the estimate of capital
investment for Alternative 2 have to vary so that the initial
decision based on these data would be? reversed? The annual MARR is
18?% per...
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