1. The annual benefits of $4000 every year for three years may be obtained for a
ID: 1178386 • Letter: 1
Question
1. The annual benefits of $4000 every year for three years may be obtained for an investment on a production equipment costing $20,000 with a salvage value of $5,000. If MARR is 6%, choose the right equation to determine the NPW.
A)NPW = 20,000(F/P,6%,3) + 4,000(F/A, ^%, 3) + 5000
B)NPW = -20000 + 4000(P/A,6%,3) + 5000(P/F,6%,3)
C)NPW = 20,000(P/F,6%,3) + 4000(F/A,6%,3) + 5000
D) -20000(P/F,6%,3) +4000(P/A,6%,3) + 5000(P/F,6%,3)
2. The incremental cash flow between two alternatives is shown below.
Year
Incremental Cash Flow
0
-20,000
1 through 10
+3,000
10
+400
The equation(s) that can be used to correctly solve for the incremental rate of return is (are):
A) A.) 0=-20000 + 3000(P/A,i,10) +400(P/F,i,10)
B) B.) 0=-20000 (A/P,i,10)+ 3000+400(A/F,i,10)
C) C..) 0=-20000 (F/P,i,10)+ 3000(F/A,i,10) +400
D) D.) All of the above
3. In incremental analysis with three or more alternatives, which of the following statements is true?
a) The alternative that has the largest ROR is the best alternative
b) The alternative that requires the largest initials investment and has the largest ROR is the best.
c) The alternative that has the highest %u0394ROR is the best
d) All of the above
4. There are four mutally exclusive alternatives, compared using B/C method. What alternative, if any should be selected?
Alternative
Initial Investment
B/C Ratio
Incremental B/C WWhen Compared with Alternative
J
K
L
M
J
40K
1.10
-
-
-
-
K
50K
0.96
0.40
-
-
-
L
66K
1.22
1.42
2.14
-
-
M
90K
0.89
0.72
0.80
0.80
-
Year
Incremental Cash Flow
0
-20,000
1 through 10
+3,000
10
+400
The annual benefits of $4000 every year for three years may be obtained for an investment on a production equipment costing $20,000 with a salvage value of $5,000. If MARR is 6%, choose the right equation to determine the NPW. The incremental cash flow between two alternatives is shown below. The equation(s) that can be used to correctly solve for the incremental rate of return is (are): In incremental analysis with three or more alternatives, which of the following statements is true? There are four mutually exclusive alternatives, compared using B/C method. What alternative, if any should be selected?Explanation / Answer
Hi,
Please find the answers as follows:
Part 1:
Option B):NPW = -20000 + 4000(P/A,6%,3) + 5000(P/F,6%,3) is correct.
Part 2:
Option D): All of the above is correct
Part 3:
Option D): All of the above is correct
Part 4:
Alternative L should be selected.
Thanks.
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