GMC is considering three mutually exclusive electronic breaking systems for its
ID: 1228547 • Letter: G
Question
GMC is considering three mutually exclusive electronic breaking systems for its cars. MARR is 12% per year and the study period is 4 years. Data for the fixture costs of the systems are as follows:
Alternatives
A
B
C
Capital Investments
$10,000
$14,000
$7,000
Annual Savings
$4,000
$5,200
$3,000
MV (After 4 years)
$3,000
$3,500
$1,500
1. Calculate the IRR for each case
Alternatives
A
B
C
Capital Investments
$10,000
$14,000
$7,000
Annual Savings
$4,000
$5,200
$3,000
MV (After 4 years)
$3,000
$3,500
$1,500
Explanation / Answer
NPVA = -10000 + 4000*r*(1-r4)/(1-r) + 3000*r4
NPVB = -14000 + 5200*r*(1-r4)/(1-r) + 3500*r4
NPVC = -7000 + 3000*r*(1-r4)/(1-r) + 1500*r4
Equate NPV to zero in each case and solve for r
then IRR = (1/r) - 1 for that case
sorry I am not able to solve this, I dont know why my calculator is not solving equations..:( but they can be easily done by calculator
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