QUESTION 1 The key question answered by incremental analysis is: Is the IRR earn

Question

  

QUESTION 1

The key question answered by incremental analysis is:

Is the IRR earned on the additional cost > MARR?

Which alternative has the highest IRR?

Does the lowest cost alternative have an IRR > MARR?

Does each alternative have an IRR > MARR?

1 points   

QUESTION 2

When considering 3 or more mutually exclusive alternatives, how should the alternatives be ranked before performing incremental analysis?

From lowest initial cost to highest initial cost

From highest initial cost to lowest initial cost

From highest EUAC to lowest EUAC

From lowest EUAC to highest EUAC

1 points   

QUESTION 3

Based on the table, what is the EUAC for Investment A when i = 15%?

$2541

$3785

$3896

$5436

1 points   

QUESTION 4

Based on the table, what is the EUAC for Investment B when i = 15%?

$2541

$3785

$3896

$5436

1 points   

QUESTION 5

Based on the table, what is the incremental initial cost in moving from Investment A to Investment B when i = 15%?

$172

$600

$1300

$3000

1 points   

QUESTION 6

Based on the table, what is the incremental EUAC in moving from Investment A to Investment B when i = 15%?

Reduced EUAC of $111

Additional EUAC of $111

Additional EUAC of $600

Reduced EUAC of $600

1 points   

QUESTION 7

Based on the table showing 3 mutually exclusive alternatives X, Y, and Z, which is the correct order for performing incremental analysis?

Compare X against “Do nothing” then the preferred against Y then the preferred against Z

Compare Y against “Do nothing” then the preferred against X then the preferred against Z

Compare Z against “Do nothing” then the preferred against X then the preferred against Y

Choose the alternative with the highest IRR assuming IRR > MARR

1 points   

QUESTION 8

Based on the table and assuming MARR = 18%, is Investment Z economically feasible?

Yes, because NPW>0 when i = 18%

Yes, because NPW<0 when i = 18%

No, because NPW>0 when i = 18%

No, because NPW<0 when i = 18%

1 points   

QUESTION 9

Based on the table and assuming MARR = 18%, is Investment X preferred to Investment Z when compared incrementally?

Yes, because incremental PWb > incremental PWc when i = 18%

Yes, because incremental PWb < incremental PWc when i = 18%

No, because incremental PWb > incremental PWc when i = 18%

No, because incremental PWb < incremental PWc when i = 18%

1 points   

QUESTION 10

Based on the table and assuming MARR = 18%, which alternative is preferred based on incremental analysis?

The “Do Nothing” Alternative

Alternative X

Alternative Y

Alternative Z

1 points   

QUESTION 11

You can invest $100,000 in Facility 1 and earn $32,000 profit per year for 5 years or invest $150,000 in Facility 2 and earn $48,000 profit per year for 5 years. If your MARR = 15%:

Only Facility 1 is a feasible alternative

Only Facility 2 is a feasible alternative

Both Facility 1 and Facility 2 are feasible alternatives

Neither Facility 1 nor Facility 2 is a feasible alternative

1 points   

QUESTION 12

You can invest $100,000 in Facility 1 and earn $32,000 profit per year for 5 years or invest $150,000 in Facility 2 and earn $48,000 profit per year for 5 years. If your MARR = 15%:

Facility 1 is preferred based on incremental analysis

Facility 2 is preferred based on incremental analysis

Both Facility 1 and Facility 2 are equally preferred based on incremental analysis

Neither Facility 1 nor Facility 2 is feasible so the "Do Nothing" alternative is preferred

a.

Is the IRR earned on the additional cost > MARR?

b.

Which alternative has the highest IRR?

c.

Does the lowest cost alternative have an IRR > MARR?

d.

Does each alternative have an IRR > MARR?

Explanation / Answer

Question 1 )

incremental Analysis is used to make decisions by selecting between at least two alternatives. So the answer is (b) which alternative has highest IRR

question 8))

Based on the table and assuming MARR = 18%, is Investment Z economically feasible?

a.

Yes, because NPW>0 when i = 18% answer is (a)

Question 12 )

If the investment is $100,000 and MARR is 15%

Revenue is $32000 for year PV is 32000 x 3.3522 = $107270

The present worth = 107270 – 100000 = $7270

If the investment is $150000 and MARR is 15%

Revenue is $48000 for year PV is 32000 x 3.3522 = $160905

The present worth = 160905 – 150000 = $10905

The incremental benefit in project b is = 10905 – 7270 = 3635 hence answer is (b ) facility B is preferred

a.

Yes, because NPW>0 when i = 18% answer is (a)

Question 12 )

If the investment is $100,000 and MARR is 15%

Revenue is $32000 for year PV is 32000 x 3.3522 = $107270

The present worth = 107270 – 100000 = $7270

If the investment is $150000 and MARR is 15%

Revenue is $48000 for year PV is 32000 x 3.3522 = $160905

The present worth = 160905 – 150000 = $10905

The incremental benefit in project b is = 10905 – 7270 = 3635 hence answer is (b ) facility B is preferred

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