Discussions with the accounting department reveal that a loan must be secured to
ID: 2593575 • Letter: D
Question
Discussions with the accounting department reveal that a loan must be secured to purchase any machine. The loan data to cover the initial cost are as follows: Data Down Payment (% of Initial CostatYearo) Alternative A Alternative B Annual Loan Payment 34,392.11 37,441.93 The loan payments will be made annually with 12% interest. Your company assumes a MARR equal to 15%. Answer the following questions: 37. The analysis period you should use is: a. 24 years b. 21 years c. 12 years d. 18 years 38. The rate that you are going to use in comparing the alternatives is: a.12% b. 15% C. 30% d. 13% 39. The equivalent uniform annual worth of the benefits for Alternative A over its useful life is: a. $73,000 b. $79,101 c. $75,516 d. $71,901Explanation / Answer
37. Answer is (d), 18 years. It is always Least Common Multiple of both payback periods, so that both data can be compared for same number of years. So, we'll purchase Machine A 3 times (6*3=18years) & Machine B 2 times(9*2=18 years)
38. Answer is (b), 15%.MARR is used to compare alternatives. 12% will only be used to find the loan amount.
For questions 39,40,41 & 42, information regarding 'benefits' is missing. Kindly upload those details too.
Still, am mentioning steps to solve, if it helps.
Hints to solve:
Loan of Alternative A is 141,400 (Multiplying PV Factor of 6 years at 12%, i.e. 4.111407 with 34392.11)
& of Alternative B is 199,500. (Multiplying PV Factor of 9 years at 12%, i.e. 5.3282498 with 37441.93)
Find present value of benefits of Alternative A (Discounting with 15% for 6 years) & of Alternative B (Discounting with 15% for 9 years).
Compare present value of benefits with loan, to evaluate better alternative.