ABC Company is considering the purchase of a new forklift for its flourishing roofing business. The...

60.1K

Verified Solution

Question

Finance

ABC Company is considering the purchase of a new forklift forits flourishing roofing business. The key parameters of the threeforklifts under scrutiny (Alpha, Beta and Gamma) are providedbelow.
Parameters
Alpha
Beta
Gamma
Initial Cost($)
400,000
500,000
550,000
Revenues ($)
230,000 at EOY1
Decreasing by 1% annually thereafter
300,000 at EOY1 increasing by 1000 annually thereafter
330,000 at EOY1 decreasing by 1500 annually thereafter
Operating Costs ($)
105,000 at EOY1 increasing by 2% annually thereafter
214,000 annually
223,000 at EOY1 increasing by 1000 annually thereafter
End-of life salvage value
-10,000
10,000
25,000
Useful life (years)
5
10
10
Industry Standard
= 4 years
MARR = 10%
EOY = End of year
21.i) The incremental External Rate of Return (?ERR) betweenAlpha and Gamma (second decimal; no rounding) is a) 9.40%; b)9.97%; c) 10.25%; d) 10.62%.
ii) The incremental External Rate of Return (?ERR) between Betaand Gamma (second decimal; no rounding) is a) 8.19%; b) 9.30%; c)9.88%; d) 10.91%.

Answer & Explanation Solved by verified expert

4.1 Ratings (528 Votes)

Alpha Year Cash flowsrevenues Op Costs salvage Valuecost Net Cash flows A B C D ABC 0 400000 40000000 1 230000 105000 12500000 2 227700 107100 12060000 3 225423 109242 11618100 4 22316877 11142684 11174193 5 2209370823 113655377 10000 9728171 Beta Year Cash flowsrevenues Op Costs salvage Valuecost Net Cash flows A B C D ABC 0 500000 500000 1 300000 214000 86000 2 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

ABC Company is considering the purchase of a new forklift forits flourishing roofing business. The key parameters of the threeforklifts under scrutiny (Alpha, Beta and Gamma) are providedbelow.ParametersAlphaBetaGammaInitial Cost($)400,000500,000550,000Revenues ($)230,000 at EOY1Decreasing by 1% annually thereafter300,000 at EOY1 increasing by 1000 annually thereafter330,000 at EOY1 decreasing by 1500 annually thereafterOperating Costs ($)105,000 at EOY1 increasing by 2% annually thereafter214,000 annually223,000 at EOY1 increasing by 1000 annually thereafterEnd-of life salvage value-10,00010,00025,000Useful life (years)51010Industry Standard= 4 yearsMARR = 10%EOY = End of year21.i) The incremental External Rate of Return (?ERR) betweenAlpha and Gamma (second decimal; no rounding) is a) 9.40%; b)9.97%; c) 10.25%; d) 10.62%.ii) The incremental External Rate of Return (?ERR) between Betaand Gamma (second decimal; no rounding) is a) 8.19%; b) 9.30%; c)9.88%; d) 10.91%.

Parameters	Alpha	Beta	Gamma
Initial Cost($)	400,000	500,000	550,000
Revenues ($)	230,000 at EOY1 Decreasing by 1% annually thereafter	300,000 at EOY1 increasing by 1000 annually thereafter	330,000 at EOY1 decreasing by 1500 annually thereafter
Operating Costs ($)	105,000 at EOY1 increasing by 2% annually thereafter	214,000 annually	223,000 at EOY1 increasing by 1000 annually thereafter
End-of life salvage value	-10,000	10,000	25,000
Useful life (years)	5	10	10
Industry Standard = 4 years	MARR = 10%	EOY = End of year