N 201 Summer 2018 uiz Me: Quiz Me: 10.4 Discuss the problems encountered wl Suem
ID: 2657895 • Letter: N
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N 201 Summer 2018 uiz Me: Quiz Me: 10.4 Discuss the problems encountered wl Suemt Ouie is Question: 1 pt 4 of 4 This Quiz: 4 pts possible (Equivalent annual annuity) Rib & Wings-R-Us is considering the purchase of a new smoker oven for cooking barbecue, ribs, and wings. Iit is looking at two different which costs $80,000 and, because of its patented humidity control, produces the "moistest, tastiest barbecue in the world."The ovens. The first is a relatively standard smoker and would cost $49,000, last for 7 years, and produce annual cash flows of $17,000 per year. The alternative is the or would last for 11 years and produce cash flows of $24,000 per year. Assuming a required rate of return of 11 percent on both projects, compute their The EAA of the standard smoker is s (Round to the nearest dollar.) The EAA of the Smoke-alator is s (Round to the nearest dollan) Rib & Wings-R-Us should purchase the (Select from the drop-down menu.) ToolsExplanation / Answer
EAA=r*(npv)/(1-(1+r)^-n)
For Standard Smoker, 1st we need to calculate NPV
-cf0+p*((1-(1+r)^-n)/r)
=-49000+(17000*((1-(1.11^-7)/0.11))
=31107.34
EAA=(0.11*31107.34)/(1-(1.11^-7)
=$6601.45
For Smoke Alator, 1st we need to calculate NPV
-cf0+p*((1-(1+r)^-n)/r)
=-80000+(24000*((1-(1.11^-11)/0.11))
=68956.31
EAA=(0.11*68956.31)/(1-(1.11^-11)
=$11110.32
C Smoker Alator will be chosen as it has higher EAA
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