Problem 6-80 (algorithmic) Question Help For the following table, assume a MARR

Question

Problem 6-80 (algorithmic) Question Help For the following table, assume a MARR of 9% per year and a useful life for each alternative of six years that equals the study period. The rank order of alternatives from least capital investment to greatest capital investment is Do Nothing A-C B. Complete the IRR analysis by selecting the preferred altenative. Do A A C A Capital investment ? Annual revenues ? Annual costs ? Market value ? IRR -$15,000 4,000 -1,000 6,000 12.7% $2,000$3,000 470 -100 3.350 900 -150 -2,220 10.5% The IRR of ? (C-+ B) is 11%. (Round to one decimal place.)

Explanation / Answer

ANSWER:

In order to find the irr , we will have to equate the present worth to zero.

n = 6 years

pw of ( c- b) = capital investment + annual revenues(p/a,i,n) + annual costs(p/a,i,n) + market value(p/f,i,n)

pw of (c - b) = -3,000 + 470(p/a,i,6) - 100(p/a,i,6) + 3,350(p/f,i,6)

0 = -3,000 + 470(p/a,i,6) - 100(p/a,i,6) + 3,350(p/f,i,6)

3,000 = 470(p/a,i,6) - 100(p/a,i,6) + 3,350(p/f,i,6)

solving via trial and error we get i = 13.71%

therefore the irr of c - b is 13.71% and the prefered alternative is c.

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