Questions which require graphical solutions, please use Excel and submit Tables and Graphs with your 1.) Three mutually exclusive alternatives are being considered: C Initial investment Cost $43,000 $24,000 $17,000 Annual net income $4,150 $2,500 $1,700 Rate of Return 7.3% 8.3% 6.0% Each alternative has a 20 -year useful life and no salvage value a) Construct a choice table for interest rates from 1 to 60%. b) Calculate the PW of each alternative and draw the graph of PW vs Interest rate for each alternative on the same chart. c) If the minimum attractive rate of return is 7% which alternative should be selected? Submit the Excel graph and choice table with your solution. I

Questions which require graphical solutions, please use Excel and submit Tables and Graphs with your 1.) Three mutually exclusive alternatives are being considered: C Initial investment Cost $43,000 $24,000 $17,000 Annual net income $4,150 $2,500 $1,700 Rate of Return 7.3% 8.3% 6.0% Each alternative has a 20 -year useful life and no salvage value a) Construct a choice table for interest rates from 1 to 60%. b) Calculate the PW of each alternative and draw the graph of PW vs Interest rate for each alternative on the same chart. c) If the minimum attractive rate of return is 7% which alternative should be selected? Submit the Excel graph and choice table with your solution. I

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9PA: Pitt Company is considering two alternative investments. The company requires a 12% return from its...

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Pitt Company is considering two alternative investments. The company requires a 12% return from its investments. Neither option has a salvage value. Compute the IRR for both projects and recommend one of them. For further instructions on internal rate of return in Excel, see Appendix C.
Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected? Alternative A B Fist cost $2,000 $3,000 Uniform annual benefit $450 $600 Salvage Value $200 700 Useful life 6 years 6 years Hint: Equation: PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000 PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000 or Spreadsheet: PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000 PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000
Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (AROR) analysis. MARR = 10%. A B C D $15,000 $21,200 $36,000 45,000 1,600 700 400 1,000 First cost O &M Cost/ year Benefit/year 8,000 9,000 13,000 Salvage value 3,000 4,600 6,000 Life in years 4 15,000 10,000
2) Data for 2 alternatives are given below, determine the cost of alternative B so that the two alternatives will be equally desirable. Assume an interest rate of 15%. Use benefit cost ratio analysis Alternatives A B Cost P100KX Salvage Value 10k 16k Annual Benefit 28k 30k Life (years) 10 12
Two different alternatives are being compared. Using Net Present Worth Analysis which alternative is best? Use an interest rate of 9%. Alternative Initial Cost A В $ 1,425 $ 2,168 $ 1,325 $ $ Annual Benefit 620 Salvage Value Useful Life (years) 465 $ 897 3 9. A is the best alternative Choose neither alternative Choose either alternative B is the best alternative
Any suggestions? Thanks for the help! Given the data for three different alternatives in the table below, determine the best alternative using the incremental rate of return (∆RoR) analysis. MARR =9%. A B C First cost $15,000 $25,000 $20,000 O &M Cost/ year 1,600 400 900 Benefit/year 8,000 13,000 9,000 Salvage value 3,000 6,000 4,600 Life in years 4 4 4 1. The better alternative between the first increment is ________________. 2. The better alternative between the second increment is ___________________.
2. Data for two alternatives are as follows: Alternatives A B Investment P35, 000 P50, 000 Annual benefits P20, 000 P25, 000 Annual O and M P6, 450 P13, 830 Estimated life, years 4 8. Net salvage value Р3, 500 Using an interest rate of 20%, which alternative should be chosen? Ans: Alternative A is referred over Alternative B
8. Consider the following three mutually exclusive alternatives. Each alternative has a 10- year useful life and no salvage value. Using present worth analysis, draw a graph in the MS Excel template on sheet Q8 showing these three alternatives for various interest rates (save this graph as a separate sheet in MS Excel and name this sheet Graph Q8). Also construct a choice table for interest rates from 0% to 100%. Show your choice table in your working document. Initial cost Annual benefit in each of first 5 years Annual benefit in each of subsequent 5 years A $1,500 250 450 B $1,000 250 250 C $2,035 650 145
Data for 2 alternatives are given below, determine the cost of alternative B so that the two alternatives will be equally desirable. Assume an interest rate of 15%. Use benefit cost ratio analysis Alternatives A Cost Salvage Value Annual Benefit Life (years) B P100k X 10k 16k 28k 30k 10 12
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In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for 2 years) and Project F (which lasts for 4 years): The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital. (1) What is each projects initial NPV without replication? (2) What is each projects equivalent annual annuity? (3) Apply the replacement chain approach to determine the projects extended NPVs. Which project should be chosen? (4) Assume that the cost to replicate Project T in 2 years will increase to 105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?
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