Part 1. Select the best alternative using MARR= 6% . Use incremental analysis an

Question

Part 1. Select the best alternative using MARR= 6%. Use incremental analysis and PW(6%)

Part 2. Prepare the tables and evaluate the mutually exvlusive investments. ATCF using PW(6%) ,  

MARR=6% per year and TAX= 40%
For alternative A use STRAIGHT LINE METHOD
For alternative B use MACRS- ADS 6 years recovery period.

I. SELECT BETWEEN ALTERNATIVES (60%) 1. Select the best alternative using MARR-6%, Use INCREMENTAL ANALYSIS and PW (6%) Annual Revenues Annual Cost Market Value at end of useful life MAQ-A-1 MAQ-B I -MAQ-C Capital Investment $15,000 $10,000$20,000 5,900 3,600 6,000 600 1,000 1,300 1,000 1,600 900 Useful life (years) 2. You have been selected to evaluate the following BTCF mutually exclusive investment alternatives Prepare the tables and evaluate the Mutually Exclusive Alternatives, ATCF using PM6%) And select the preferred alternative MARR-6% per year use tax-40% Depreciation use the following conditions: .For alternative A use Straight-Line (SL) Method (Classical Method) For alternative B use MACRS- AD S 6 years recovery period. Capital Investment Annual Revenues Annual Cost Market Value at end of useful life Useful life (years) $20,000 3,600 600 1,000 $35,000 5,900 900 1,300 10 10 CE tables (40%)

Explanation / Answer

Part 1: Step 1: Best Alternative Using Present Worth Method

From the given table, we can say that Alternative 1: MAQ-A is the best because it has highest positive worth.

Part 1: Step 2: Selection of Best Alternative Using Incremental Approach

Here again the best alternative ia MAQ-A because it gives a positive benifit of over the other two alternatives. The total cost and incremental cost approaches always will yield equivalent conclusions. Choosing between them is a matter of personal preferences.

Alternative 1: MAQ-A 0 1 2 3 4 5 1 Capital Investment 15000 2 Annual Revenues 5900 5900 5900 5900 5900 3 Annual Cost 900 900 900 900 900 4 Salvage Value 1300 5 Net Cash Flow -15000 5000 5000 5000 5000 6300 6 Discount Factor 1 0.943 0.890 0.840 0.792 0.747 7 Present Worth -15000 4716.981 4449.982 4198.096 3960.468 4707.726 8 Net Present Worth 7033.255 Alternative 2: MAQ-B 1 Capital Investment 10000 2 Annual Revenues 3600 3600 3600 3600 3600 3 Annual Cost 600 600 600 600 600 4 Salvage Value 1000 5 Net Cash Flow -10000 3000 3000 3000 3000 4000 6 Discount Factor 1 0.943 0.890 0.840 0.792 0.747 7 Present Worth -10000 2830.189 2669.989 2518.858 2376.281 2989.033 8 Net Present Worth 3384.35 Alternative 3: MAQ-C 1 Capital Investment 20000 2 Annual Revenues 6000 6000 6000 6000 6000 3 Annual Cost 1000 1000 1000 1000 1000 4 Salvage Value 1600 5 Net Cash Flow -20000 5000 5000 5000 5000 6600 6 Discount Factor 1 0.943 0.890 0.840 0.792 0.747 7 Present Worth -20000 4716.981 4449.982 4198.096 3960.468 4931.904 8 Net Present Worth 2257.432

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---