(3) Three different projects are being considered for Quality Computer Accessori
ID: 2560444 • Letter: #
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(3) Three different projects are being considered for Quality Computer Accessories, Inc. Using Ma mremat a ete the incremental rate of return method, determine the proper alternative to select if the MARR is 6% per year, compounded annually. The projects are mutually exclusive: at most, only one project can be selected or none of the projects must be selected. Cash flow diagrams are not required but you can do them if you prefer. (The solution must be shown in logical order and must be appropriately documented. Clearly label each comparison made and the alternative selected in each case. Note that a significant number of points will be deducted if the comparison made at any point in the solution is not correct. Show all work, including factor notation, equations, values of factors, etc.) Project A 175,000 28,000 15 Project B 135,000 21,000 Project C 195,000 31,000 15 First Cost (S) Annual Income (S/yr) Life (years) (i) Compare the alternatives based on the incremental present worth (PW). (i) Since there is positive cash flow, start by comparing the least expensive alternative to the Do-Nothing (DN) alternative. (ii) State which project is finally selected. The selected project isExplanation / Answer
Particulars Project A Project B Project C
*To calcualate the discounted cash flow we have to discount the cash flows using the discount rate i.e MARR @ 6%
*present value annuity factor of 6% for 15 years is - 9.712
(i) Therefore based on the above calculation the best project is project C having highest Incremental present worth @ 1,06,072 when compared to the other two projects , project c has highest Incremental present worth
(ii) Do nothing alternative here would be by chasing the least expensive alternative as all the cshflows are posiitve, the least expensive is project B.
(iii) Therefore based on Incremntal Present Worth as we have all the cash flows as positve, the finally selected project would be Project C.
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