Data for Problems 1 and 2 The cash flows for three mutually exclusive alternat i
ID: 2590016 • Letter: D
Question
Data for Problems 1 and 2 The cash flows for three mutually exclusive alternat ives are given in table below use MARR- Alt. B Alt Alt. A $11,000 1523,000-20,000 Initial cost RoR Life in years Annual benefits! $3.500-6,600 5,500 | 15% 13% | 11% 5 Problem 1 RoR for the first increment (Alt. C-Alt. A) is . A. 3.00% B. 3.50% C. 3.62% 4.00% Problem 2 Determine the RoR for the second increment (Alt. B-Alt. A) if A was retained during the first incren analysis. A. 10.00% B. 9.50% 9.19% D. 9.00% Problem 3 Determine the Rate of Return for a project that has an initial cost of $80,000 and would provid cash flows of $12,000 the first year, $14,000 the second year, $16,000 the third year, $18,000 year, $20,000 the fifth year, and $15,000 the sixth year. @s0% B. 4.50% C. 4.86% A. 4.00%Explanation / Answer
Answer:
Alternative -1
15 %
Year
cash inflow
PV@15%(ROR)
Present value of benefit
1
$ 3,500.00
0.8696
$ 3,043.60
2
$ 3,500.00
0.7561
$ 2,646.35
3
$ 3,500.00
0.6575
$ 2,301.25
4
$ 3,500.00
0.5718
$ 2,001.30
5
$ 3,500.00
0.4972
$ 1,740.20
$ 11,732.70
Cost
$ 11,000.00
NPV
$ 732.70
Alternative -B
13.00000%
Year
cash inflow
PV@13%(ROR)
Present value of benefit
1
$ 6,600.00
0.885
$ 5,841.00
2
$ 6,600.00
0.7831
$ 5,168.46
3
$ 6,600.00
0.6931
$ 4,574.46
4
$ 6,600.00
0.6133
$ 4,047.78
5
$ 6,600.00
0.5428
$ 3,582.48
$ 23,214.18
Cost
$ 23,000.00
NPV
$ 214.18
Alternative -C
11.00000%
Year
cash inflow
PV@11%(ROR)
Present value of benefit
1
$ 5,500.00
0.9009
$ 4,954.95
2
$ 5,500.00
0.8116
$ 4,463.80
3
$ 5,500.00
0.7312
$ 4,021.60
4
$ 5,500.00
0.6587
$ 3,622.85
5
$ 5,500.00
0.5935
$ 3,264.25
$ 20,327.45
Cost
$ 20,000.00
NPV
$ 327.45
Problem:1
Change in ROR : for [Alternative C -Alternate A):
=(732.70-327.45) / (20000-11000)
=4.06%
Answer: (D)
Problem:2
Change in ROR : for [Alternative B -Alternate A):
=(732.70-214.80) / (23000-11000)
= 4.32%
= Minimum Acceptable Rate of Return + Change in ROR
=4 %+ 4.32%
=8.32
Answer: (D)
4.86%
Year
cash inflow
PV@4.86%(ROR)
Present value of benefit
1
$ 12,000.00
0.9537
$ 11,444.40
2
$ 14,000.00
0.9095
$ 12,733.00
3
$ 16,000.00
0.8673
$ 13,876.80
4
$ 18,000.00
0.8271
$ 14,887.80
5
$ 20,000.00
0.7888
$ 15,776.00
6
$ 15,000.00
0.7522
$ 11,282.00
$ 80,000.00
Cost
$ 80,000.00
NPV
0
ROI
0.00%
ANswer : (C) 4.86%
Working NoteAlternative -1
15 %
Year
cash inflow
PV@15%(ROR)
Present value of benefit
1
$ 3,500.00
0.8696
$ 3,043.60
2
$ 3,500.00
0.7561
$ 2,646.35
3
$ 3,500.00
0.6575
$ 2,301.25
4
$ 3,500.00
0.5718
$ 2,001.30
5
$ 3,500.00
0.4972
$ 1,740.20
$ 11,732.70
Cost
$ 11,000.00
NPV
$ 732.70
Alternative -B
13.00000%
Year
cash inflow
PV@13%(ROR)
Present value of benefit
1
$ 6,600.00
0.885
$ 5,841.00
2
$ 6,600.00
0.7831
$ 5,168.46
3
$ 6,600.00
0.6931
$ 4,574.46
4
$ 6,600.00
0.6133
$ 4,047.78
5
$ 6,600.00
0.5428
$ 3,582.48
$ 23,214.18
Cost
$ 23,000.00
NPV
$ 214.18
Alternative -C
11.00000%
Year
cash inflow
PV@11%(ROR)
Present value of benefit
1
$ 5,500.00
0.9009
$ 4,954.95
2
$ 5,500.00
0.8116
$ 4,463.80
3
$ 5,500.00
0.7312
$ 4,021.60
4
$ 5,500.00
0.6587
$ 3,622.85
5
$ 5,500.00
0.5935
$ 3,264.25
$ 20,327.45
Cost
$ 20,000.00
NPV
$ 327.45
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