please do both parts a and b (Not due on Monday 6th November) The table below pr

Question

please do both parts a and b

(Not due on Monday 6th November) The table below provides cash flows for two mutually exclusive alternatives for developing a "Pay for Recreation" facility being considered by a county government in Georgia. If money can be borrowed issuing bonds at the rate of 7% per year, using the RoR analysis, find the attractive alternative between the two given proposals. Alt. A 10M IM 1.5M Alt. B 37M 4M 2.5M Year 1-10 Answer: Choose the higher cost alternative, Alt B (Not due on Monday 6th November) Kruber company located Tennessee is considering two different makes of a blow molding machine for one of its automotive products. The cost data for the two alternatives are provided in table below. MARR =12% Machine X Machinc Y $150K Initial cost Annual Benefits /Year Salvage valuc Life Answer: Choose the lower cost alternative, alt. X $275K 60K 120K 40K ating cost 55K 100K 20K 10 Years

Explanation / Answer

Year Alt. A Alt. B

0 -$10,000,000 -$37,000,000

1 $1,000,000 $4,000,000

2 $1,000,000 $4,000,000

3 $1,000,000 $4,000,000

4 $1,000,000 $4,000,000

5 $1,000,000 $4,000,000

6 $1,000,000 $4,000,000

7 $1,000,000 $4,000,000

8 $1,000,000 $4,000,000

9 $1,000,000 $4,000,000

10 $1,000,000 $4,000,000

Terminal Cash Flow (cash flow of year 11/7%) 11 $21,428,571 $35,714,286

IRR 14.42% 10.04%

Alternative A is better option because of higher rate of return (IRR = 14.42%)

Investment in machine X is better option because of higher NPV of $110,700

Machine X Year (n) Initial Investments Annual operating cost Benefits per year Salvage value Cash Flow (Annual Benefits - Annual cost) PV= CF/(1+MARR)^n 0 -$150,000 -$150,000 -$150,000 1 $55,000 $100,000 $45,000 $40,179 2 $55,000 $100,000 $45,000 $35,874 3 $55,000 $100,000 $45,000 $32,030 4 $55,000 $100,000 $45,000 $28,598 5 $55,000 $100,000 $45,000 $25,534 6 $55,000 $100,000 $45,000 $22,798 7 $55,000 $100,000 $45,000 $20,356 8 $55,000 $100,000 $45,000 $18,175 9 $55,000 $100,000 $45,000 $16,227 10 $55,000 $100,000 $20,000 $65,000 $20,928 NPV $110,700 Machine Y Year (n) Initial Investments Annual operating cost Benefits per year Salvage value Cash Flow (Annual Benefits - Annual cost) PV= CF/(1+MARR)^n 0 -$275,000 -$275,000 -$275,000 1 $60,000 $120,000 $60,000 $53,571 2 $60,000 $120,000 $60,000 $47,832 3 $60,000 $120,000 $60,000 $42,707 4 $60,000 $120,000 $60,000 $38,131 5 $60,000 $120,000 $60,000 $34,046 6 $60,000 $120,000 $60,000 $30,398 7 $60,000 $120,000 $60,000 $27,141 8 $60,000 $120,000 $60,000 $24,233 9 $60,000 $120,000 $60,000 $21,637 10 $60,000 $120,000 $40,000 $100,000 $32,197 NPV (Sum of PVs) $76,892

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