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- If a $15,000 investment earns a 6 percent annual return, what should its value be after 4 years? Use Exhibit 1-A. Multiple Choice O O $18,930 $18,600 $15,045 $19,900 $15,9002. Your firm is considering the following 3 mutually exclusive alternatives. Interest rate is10%. A B CInitial Cost $35,000.00 $21,000.00 $42,000.00Annual Benefit $4,200.00 $3,300.00 $5,000.00Salvage value 0 $1,000 $1500Project life Forever 20 year 50 a. Calculate the Benefit-Cost ratio of each projectb. Which of the 3 alternatives should be selected using B/C ratio analysis (show yourwork)?Which alternative should be selected using the incremental rate of return analysis, if MARR =11.0%? Do- nothing A B C D First Cost 0 $10,000 $4000 $10,000 $7000 Annual benefit 0 1,806 828 1,880 1,067 Life 10 Years ROR 12.5% 16.0% 13.5% 8.5% a. B, because its ROR is the highest b. Something other than C, because C costs the most initially c. C, because the C-B increment has a ROR of 11.78% and the A-B increment has a ROR of 10.5% d. C because C has the highest annual benefit
- 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 BGiven the financial data in the table below for two mutually exclusive alternatives, determine the value "X" for the two alternatives to be equally attractive. Use an interest rate of 12% per year. Q Initial cost $2,500 $4,000 Annual benefit 400 LifeRefer to the data provided below for Proposal A Proposal AInitial investment $100,000Cash flow from operations Year 1 60,000Year 2 40,000Year 3 35,000Disinvestment -Life (years) 3Discount rate (for all proposals) 12% Compute the net present value for Proposal A ( for all 3 years) and consider this the likely scenario. Note: Round your answers to the nearest whole dollar. Use a negative sign to indicate a cash outflow.
- Q1 Compare present value analysis, (minimum attractive rate of return is %8 annualy.) Alternative F Alternative Z First cost, TL Annual earning, TL Maintance cost every 5 year, 400.000 650.000 -same amount- wwww w 90.000 115.000 www m 25.000 30.000 TL Scrap value, TL lifetime, (years) 100.000 1.200.000 50 infiniteConsider the two mutually exclusive projects that follow. EOY 0 1 2 3 Project A -10000 5125 5125 5125 4450 Project B -8500 4450 4450 The firm's MARR is 10% per year Select the CORRECT statement: O a. The PW of project A is equal to that of project B O b. The PW of project A is smaller than that of project B O c. The IRR of project B is larger than that of project A O d. The IRR of project A is larger than that of project BAssuming that Alternatives B and C are replaced with identical units at the end of their useful lives, and an 8% interest rate, which alternative should be selected? Use an annual cash flow analysis. A B C cost $12,500 $15,000 $17,500 Annual benefit 1,500 3,500 2,500 useful life (yrs) 7 15
- Evaluate the two alternatives A and B and decide the economic justified alternative using: Present worth method, Annual worth method, Future worth method I.R.R method E.R.R Method , E.R.R.R method M.A.R.R = 15%, the details of alternatives are shown in the table below Alternatives A B Investments $120,000 $155,000 Useful life (years) 15 20 Annual disbursements $25,000 $35,000 Annual revenues $45,000 $60,000 Salvage values $25,000 $30,000The five alternatives shown here are being evaluated by the rate of return method: If the alternatives are independentand the MARR is 17% per year, which alternative(s) should be selected? A D E Initial Investment ($) -25,000 -35,000 -40,000 -60,000 -75,000 i% (ROR versus DN) 9.6% 17.1% 13.4% 27.4% 22.2% O a. A and C O b. O C. All of them O d. B. D, andE Incremental cash flow = cash flowB – cash flowA. where larger initial investment is EN al!Problem 1. Multiple-Choice (8 2 OLf you invest $14,000 now into a projeet that will yield net evenue of $1,763 at the end of each year for 12 years, what is the IRK of your investment a) 15 b) 10% )9% d) 12 ej 7% D None of the above 02 it you invent $10,000 nuw into a project that will yield net tevenue of S1.560 the end of each year for 12 years, what is the ERR of your investment if your reinvestment rate is 9% per year a) 10% b) O d) 7% 06 012% None of the above 03. How much can you afford to pay for a 56,000 bond that pays 7% interest annually and will maturs 20 years hence if you desire to earn 10% on your investment? a)54,319 b) $2,979.8 ) $2.7435 d) $6,000 )53,227 ) None of the above Q4. A machine costs $40,000 and is expected to save $16,200 per year while in operation, If MARR - 20, what is the discounted payback period? a)6 years b) 5 years c) 4 yeap d) 3 years e) 7 years ) None of the above Q5. A piece of equipment is purchased for $20,000, will generate revenues of $4,000…