A large processing plant is trying to decide between two air scrubbing units. Th

Question

A large processing plant is trying to decide between two air scrubbing units. The unit is required by clean air regulations and will be replaced by an identical unit of itself at the end of its useful life into the foreseeable liiture. Costs and benefits are as follows: Assume an interest rate of 12% per year. Use equivalent uniform annual cash flow analysis to determine which pump should be selected. A firm is considering an investment in a robotic transfer cell. Three alternatives are under consideration, each with a 7-year technological life. The firm uses an 18% MARR. The cash flows of the alternatives are as follows: Using incremental rate of return analysis, determine which alternative the firm should select.

Explanation / Answer

Answer 3) MARR or Interest 12% Alternatives A B year Present Value of $1 at MARR or Interest rate Cash flow for A PV of cash flow for A Cash flow for B PV of cash flow for B 0 1.000 -17250 -17250.00 -24000 -24000.00 1 0.893 -2400 -1750.00 -1750 -1562.50 2 0.797 -2400 -1913.27 -1750 -1395.09 3 0.712 -2400 -1708.27 -1750 -1245.62 4 0.636 -2400 -1525.24 -1750 -1112.16 5 0.567 -2400 -1361.82 -1750 -993.00 6 0.507 -2400 -1215.91 -1750 -886.60 7 0.452 -2400 -1085.64 -1750 -791.61 8 0.404 -2400 -969.32 -1750 -706.80 9 0.361 -150 -54.09 -1750 -631.07 10 0.322 0.00 -1750 -563.45 11 0.287 0.00 5750 1652.99 NPV -28833.57 -32234.90 Total Years 9 11 Equivalent Uniform Annual Cash flow ($5,411.45) ($5,428.85) Answer : Since Option A has lesser negative equivalent uniform annual cashflow (i.e. lesser expenses), we choose option A Answer 4) MARR or Interest 18% year Cash flow for A Cash flow for B Cash flow for C Cash Flow of A-B Cash Flow for C-A 0 -18000 -17000 -19500 -1000 -1500 1 4600 4250 4850 350 250 2 4600 4250 4850 350 250 3 4600 4250 4850 350 250 4 4600 4250 4850 350 250 5 4600 4250 4850 350 250 6 4600 4250 4850 350 250 7 7950 8000 9950 -50 2000 IRR 19.07% 18.72% 18.97% IRR is Higher than MARR => Acceptable Solution IRR is Higher than MARR => Acceptable Solution IRR is Higher than MARR => Acceptable Solution Delta IRR 25.99% 18.04% Decision Greater than MARR, Hence choose A over B Greater than MARR, Hence choose C over A Answer : Choose C

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.