5. (Ch11) Assuming a capital budget of $125,000 and a 5 year life, what is the MARR? Project First Cost ABCDEFG $30,000 $ 20,000 $ 8,000 $ Annual Benefit $ $ $ 7,000 $ $ $ $ $ 35,000 $ 35,000 $ 28,000 14,000 8,000 3,000 2,400 13,000 17,000 14,000
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- With interest at 10%, what is the benefit-cost ratio for this government project? Initial Cost Additional costs at the end of year 1 and year 2 Benefits at end of year 1 and year 2 Annual benefits at end of year 3 through year 2 Enter your answer as follow 12.34 $208,355 $23,720/year $0Ayear $91.825/year6. David is opening an Aerial Adventure Park. He has three mutually exclusive design alternatives: Capital investment Annual receipts Annual expenses Design A $175,000 $115,000 $70,000 Design B $350,000 $150,000 $80,000 Design C $300,000 $125,000 $70,000 Market values are negligible. A 10-year study period is to be used and the MARR is 10% per year. Use the FW Method to determine which alternative should be chosen.Question 4 Which increment should be examined first in incremental rate of return analysis, if MARR = 9.0%? Do-nothing A First cost Annual benefit Life ROR A-B O A-C O B-C OB-A 0 0 10 yrs $5,500 895 10.0% B C $3,000 $7,000 531 1,164 12.0% 10.5% D $3,000 408 6.0%
- Qutestion 3 Solve this problem using the incremental Benefit - Cost ration with, expected life of 10 years and rate of return of 10% Alternative A Initial cost $50,000 Annual maintenance cost $4,000 Estimated annual benefit $15,000 Alternative B Initial cost $30,000 Annual maintenance cost $3,000 Estimated annual benefit $9,000 a. Select B with B/C=1.14 b. Select B with B/C=1.41 c. Select A with B/C=1.14 d. Reject A with B/C=1.144. A rate of return analysis was conducted for the following alternatives, based on the table below. G -20,000 -30,000 -50,000 -80,000 Investment Amount, $ i* ROR, % Revenue, $ 20 35 25 20 10,500 12,500 16,000 4,000 E vs. Machines Compared DN F vs. E G vs F H vs F Ai* Incremental Analysis, 20 65 10 11 a) If the proposals are independent, which should be selected when the MARR is 20% per year. b) If the proposals are mutually exclusive, which should be selected when the MARR is 16% per year. c) If the proposals are mutually exclusive, which should be selected when the MARR is 11% per year. d) Based on the top two i* values, a selection must be made based on the MARR of 12% per year To receive full credit, for part a- d ensure you indicate for each incremental step why they are being eliminated &/or selected.For this problem, consider the five mutually exclusive investment alternatives, A through E, with incremental analysis. Do nothing is not an alternative. |A C Capital $55,000 $90,000 $45,000 $30,000 $70,000 investment Annual $30,000 $40,000 $25,000 $15,000 $35,000 expenses Annual $50,000 $52,000 $38,000 $29,000 $45,000 revenues Market value at $10,000 $15,000 $10,000 $11,000 $15,000 ΕΟΥ 10 IRR ??? 7.4% 26.7% 46.0% 9.2% Useful Life in 10 |10 10 10 10 years When applying incremental analysis, the base alternative is identified, and then the first incremental comparison should be which of the following? Assume the MARR=10%. Choose the correct answer below. The first letter is the base alternative and the second letter is the next alternative in the analysis. A. D - C В. Е - D C. E - A D. D - B E. D - A
- Q1) The following figures indicate to cash flows for project (X, Y, Z) respectively. project Z: Project X :r=11% cash flow (CF) project Y: r=11% cash flow (CF) r=11% year cash flow (CF) -999 -342 -10202 1 290 105 1300 310 105 1390 3 315 115 1690 4 810 119 2460 5 820 290 2600 825 390 2890 7 905 420 2989 6.15. You want to open a new business but for the first 3 years you wont make any income as it takes time for the paperwork and approvals to process. After your business is up and running, you will make $75,000 per year forever. What is the capitalized cost of the income at 8% per year? What does the capitalized cost represent in layman terms?3) A and B are mutually exclusive projects.. What MARR has to be for A to be chosen? A B Initial cost Useful life Annual benefit Salvage value Rate of return $30,000 6 years $8,577 $0 18%lyr $50,000 6 years $8,577 $29,098 12%/yr a) MARR<8.4% b) MARR< 6.4% c) 8.4%A project is being planned that has an initial investment at time 0, annual revenuesand expenses, and a salvage value at the end of the project lifespan (20 years). The financialvalues are summarized below:Initial investment amount at time 0 $150,000Estimated annual revenue $34,500 per yearEstimated annual expenses $8,700 per yearEstimated salvage value at end of lifespan $10,000Minimum attractive rate of return (MARR) 15%a. Calculate the capital recovery amount CR(i%).b. Using the annual worth (AW) method, determine whether purchasing the equipmentis economically justified.c. Repeat part (a) using the internal rate of return (IRR) method based on annual worth(AW).d. Using the present worth (PW) method, determine the break-even time period afterwhich purchase of the equipment generates a profit. (Find N when PW = 0) year period.The following projects listed in TABLE Q48 are being considered by Muhibbah Fabrication Company for allocation of its annual capital budget. While many worthy projects are available, the money available is limited. All projects have a 5-year life and are acceptable at a 10% interest rate. TABLE Q48: List of available projects to fund Project First Cost (RM) Net Annual Benefits PW (10%) (RM) (RM) 3,200 2,131 6,000 2,745 5,000 2,000 A B C D 10,000 20,000 A. B. C. D. 15,000 5,000 3,954 2,582 A B C D C B D A B C A D B-A-C-D Use this information, answer Q48 through Q50: 48. Rank the projects in descending order (best to worst) using PW at an interest rate of 10%. IRR (%) 49. Rank the projects in descending order (best to worst) based on IRR. A. B C A-D B. B A C D C. D→C-A-B D. D-B-C-A 18.03 15.24 19.86 28.65 50. If there is only RM30,000 allocated for capital budget, determine the MARR applicable for the funded projects. A. 28.65% B. 19.86% C. 18.03% D. 15.24%You are considering an open-pit mining operation. The cash flow pattern issomewhat unusual since you must invest in some mining equipment, conductoperations for two years, and then restore the sites to their original condition.You estimate the net cash flows to be as follows: N Cash flow 0 -$1,600,0001 1,500,0002 1,500,0003 -700,000 What is the approximate rate of return of this investment?(a) 25%(b)38%(c) 42%(d)62%SEE MORE QUESTIONS
