Question 2 20 pts Ganymede Inc. has decided to acquire a new weather satellite.

Question

Question 2 20 pts Ganymede Inc. has decided to acquire a new weather satellite. After considering several options it has narrowed its search to two satellites. Satellite Pluto: purchase cost of $272394 and operating costs of $21948 per year (paid at the end of each year). Satellite Triton: purchase cost of $244652 and operating costs of $54826 per year (paid at the end of each year). Both satellites have a service life of 11 years. Based on the defender-challenger approach and given that the MARR is 10%, reinvestment rate is 6%, and minimum external rate of return is 6%, compute the incremental external rate of return of choosing the most expensive satellite. Note: round your answer to two decimal places, and do not include spaces, percentage signs, plus or minus signs, nor commas. If your answer is 15%, write 15, not 0.15)

Explanation / Answer

Finance Rate 10% Year Pluto Triton Incremental Future value $1 @ 6% Future value of Inc flow @6% Reinvestment rate 6% 0 -272394 -244652 -27742 1 -21948 -54826 32878 1.7908477 58879.491 2 -21948 -54826 32878 1.68947896 55546.689 3 -21948 -54826 32878 1.59384807 52402.537 4 -21948 -54826 32878 1.50363026 49436.356 5 -21948 -54826 32878 1.41851911 46638.071 6 -21948 -54826 32878 1.33822558 43998.181 7 -21948 -54826 32878 1.26247696 41507.717 8 -21948 -54826 32878 1.191016 39158.224 9 -21948 -54826 32878 1.1236 36941.721 10 -21948 -54826 32878 1.06 34850.68 11 -21948 -54826 32878 1 32878 492237.67 MIRR = (492237.67/27742)^(1/11)-1 = 0.29882 29.88%

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