4. Three mutually exclusive alternatives are being considered for the production

Question

4. Three mutually exclusive alternatives are being considered for the production equip tissue paper factory. The firm's MARR is 6% per year. The estimated cash flows for each alternative are the following. (20ptos) Alternative Capital investment $2,000,000 $4.200,000 $7,000,000 nual revenues Annual costs Market value at end of useful life Useful life (years) $3,200,000 $6,000,000 $8,000,000 $2,100,000 $4,000,000 $5,100,000 $100,000 $420,000 $600,000 6 6 6 What is the Present Worth of Alternative A,B and C? Which alternative should be selected? a. b. 5. Complete the following table to find the economic life of the asset, having these cash flow estimates: (15 ptos) Capital Investment $40,000 Market Value (MV) $12,000 all the time Annual Expenses eoy(1)$4,000 eoy(2)$6,000, eoy(3) 8,000, The MARR is 6% per year. (i-MARR) 15] Ek 16) TC-31+1411+15 MV EOYIK] MarketLoss in Cost of AnnualTotal Cost PW[mar EUAC Value Market Capital Expenses

Explanation / Answer

Alternative-A: Present value of net annual cash inflow 491730 ($ 100,000* Annuity factor i.e. 4.9173) Add: Present value of salvage value 70490 $ 100,000* PVF i.e. 0.7049) Total Present value of inflow 562220 Less: Initial Investment 2,000,000 Present worth -1,437,780 Alternative-B: Present value of net annual cash inflow 9834600 ($ 2000,000* Annuity factor i.e. 4.9173) Add: Present value of salvage value 296058 $ 420,000* PVF i.e. 0.7049) Total Present value of inflow 10130658 Less: Initial Investment 4,200,000 Present worth 5,930,658 Alternative-C: Present value of net annual cash inflow 14260170 ($ 2900,000* Annuity factor i.e. 4.9173) Add: Present value of salvage value 422940 $ 600,000* PVF i.e. 0.7049) Total Present value of inflow 14683110 Less: Initial Investment 7,000,000 Present worth 7,683,110 Alternative-C shall be selected

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.