Automated Welding Services, Inc. (AWS) business has been growing and they need t
ID: 2622398 • Letter: A
Question
Automated Welding Services, Inc. (AWS) business has been growing and they need to raise their automation to the next level. They have collected data on five alternative machines/processes for which the data is shown below. Only a single alternative will be selected. AWS uses a 5-year time horizon for project justifications. Provide Spreadsheet formulas.
1. Determine which will offer the largest internal rate of return for AWS.
2. Determine using the internal rates of return criterion with an incremental analysis which will offer the largest monetary benefit to AWS if their MARR is 12%.
3. What is the difference between parts a and b?
Altern- ative
Investment in year 0
Annual Cash Flow
Salvage value in last year
A1
$50,000
$18,000
$0
A2
$250,000
$85,000
$75,000
A3
$350,000
$110,000
$175,000
A4
$600,000
$150,000
$400,000
A5
$800,000
$175,000
$600,000
Altern- ative
Investment in year 0
Annual Cash Flow
Salvage value in last year
A1
$50,000
$18,000
$0
A2
$250,000
$85,000
$75,000
A3
$350,000
$110,000
$175,000
A4
$600,000
$150,000
$400,000
A5
$800,000
$175,000
$600,000
Explanation / Answer
c. When applied to project selection among mutually exclusive projects
a) Year A1 A2 A3 A4 A5 0 ($50,000) ($250,000) ($350,000) ($600,000) ($800,000) 1 $18,000 $ 85,000 $ 110,000 $ 150,000 $ 175,000 2 $18,000 $ 85,000 $ 110,000 $ 150,000 $ 175,000 3 $18,000 $ 85,000 $ 110,000 $ 150,000 $ 175,000 4 $18,000 $ 85,000 $ 110,000 $ 150,000 $ 175,000 5 $18,000 $ 160,000 $ 285,000 $ 550,000 $ 775,000 IRR 23.44% 25.56% 25.38% 20.57% 18.41% A2 will offer the largest internal rate of return for AWS.Related Questions
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