Please use compounded interest factors in your solution. Questian C- 2o oints al
ID: 2801105 • Letter: P
Question
Please use compounded interest factors in your solution.
Questian C- 2o oints alternatives have the following cost and annual benefit data associa Alt. 1 10 Data 3 Alt. 2 10 $1,980,000 589,000 97,000 2,100 205,000 225,565 Alt . 10 $1,650,000 435,000 91,000 1,980 Useful Life, Years First Cost Annual Benefit25,000 Annual M&O; Costs 95,000 Annual M&O; Gradient 2,300 265,000 Salvage Value 178,000 145,000 150,946 Loan Payment 187,971 using an interest rate of 10%, a life equal to the life ofthe machine use a MARR of 12% and determine which machine, if any, s The loan payments are calculated and a down payment of 30%. be purcha Use ineremental rate of return for your analysisExplanation / Answer
Calculations:
Solution:
After evaluating all the given alternatives (Please refer the above tables), we will select alternative 2 as the IRR is way above the MARR i.e. 12% and also the incremental cash flow is maximum over the other two alternatives.
Working Note: for IRR and NPV calculation I have used the inbuilt excel formula.
Time 0 1 2 3 4 5 6 7 8 9 10 Alternative 1 Acquisition cost: machine 1 1325000 Annual m&o cost 0 95000 97300 99600 101900 104200 106500 108800 111100 113400 115700 Total Cash Outflow 1325000 95000 97300 99600 101900 104200 106500 108800 111100 113400 115700 Salvage value 145000 Annual benefit 0 265000 265000 265000 265000 265000 265000 265000 265000 265000 265000 Total Cash Inflow 0 265000 265000 265000 265000 265000 265000 265000 265000 265000 410000 Net cash flow 1325000 170000 167700 165400 163100 160800 158500 156200 153900 151600 294300 x Discount factor 1.000 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 Present value 1325000 151786 133689 117728 103653 91242 80301 70657 62158 54668 94757 Project IRR 5.06% Net present value of cash flow 364360 Time 0 1 2 3 4 5 6 7 8 9 10 Alternative 2 Acquisition cost: machine 2 1980000 Annual m&o cost 97000 99100 101200 103300 105400 107500 109600 111700 113800 115900 Total Cash Outflow 1980000 97000 99100 101200 103300 105400 107500 109600 111700 113800 115900 Salvage value 205000 Annual benefit 589000 589000 589000 589000 589000 589000 589000 589000 589000 589000 Total Cash Inflow 0 589000 589000 589000 589000 589000 589000 589000 589000 589000 794000 Net cash flow 1980000 492000 489900 487800 485700 483600 481500 479400 477300 475200 678100 x Discount factor 1.000 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 Present value 1980000 439286 390545 347206 308671 274408 243943 216856 192773 171362 218330 Project IRR 21.29% Net present value of cash flow 823381 Time 0 1 2 3 4 5 6 7 8 9 10 Alternative 3 Acquisition cost: machine 3 1650000 Annual m&o cost 91000 92980 94960 96940 98920 100900 102880 104860 106840 108820 Total Cash Outflow 1650000 91000 92980 94960 96940 98920 100900 102880 104860 106840 108820 Salvage value 178000 Annual benefit 435000 435000 435000 435000 435000 435000 435000 435000 435000 435000 Total Cash Inflow 0 435000 435000 435000 435000 435000 435000 435000 435000 435000 613000 Net cash flow 1650000 344000 342020 340040 338060 336080 334100 332120 330140 328160 504180 x Discount factor 1.000 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 Present value 1650000 307143 272656 242034 214843 190701 169265 150234 133338 118338 162332 Project IRR 16.34% Net present value of cash flow 310885