Question #4 (5 points) project manager alternatives. The in the table below. is
ID: 2614768 • Letter: Q
Question
Question #4 (5 points) project manager alternatives. The in the table below. is considering three mutually exclusive revenue-generating itial costs and the inflated cash flows of each alternative are shown Initial Cost (S) -17,000 -20,000 -14,000 Inflated Annual Cash flow (s per 2,800 2,500 2500 year) Life Infinite Infinite Infinit Inflated Rate of Return (%) 16.5 7.9% Answer the following questions, assuming that real MARR is 10% per year and the inflation rate is 4% per year. a) Calculate the inflated Rate of Return of Alternative Y. b) Calculate the inflated MARR. c) Using the incremental ROR Analysis, which alternative should be selected? ("Do-Nothing" is not an option) [Hint: use the inflated MARR for the ROR analysis)Explanation / Answer
1-
inflated rate of return of alternative Y
Inflated annual cash flow/initial cash cost
2500/20000
12.5%
2-
inflated MARR
real MARR + inflation rate
10%+4%
14.00%
3-
Alternative
Inflated rate of return
Inflated MARR
Incremental ROR
X
16.50%
14%
3%
Y
12.5%
14%
-2%
Z
17.90%
14%
4%
Incremental ROR is greater in case of alternative Z
1-
inflated rate of return of alternative Y
Inflated annual cash flow/initial cash cost
2500/20000
12.5%
2-
inflated MARR
real MARR + inflation rate
10%+4%
14.00%
3-
Alternative
Inflated rate of return
Inflated MARR
Incremental ROR
X
16.50%
14%
3%
Y
12.5%
14%
-2%
Z
17.90%
14%
4%
Incremental ROR is greater in case of alternative Z