Three mutually exclusive investment alternatives are being considered. The estimated cash flows for each alternative are...

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Finance

Three mutually exclusive investment alternatives are beingconsidered. The estimated cash flows for each alternative are givenbelow. The study period is 30 years and the? firm's MARR is 17% peryear. Assume repeatability and reinvestment of positive cashbalances at 17?% per year.
a. What is the simple payback period forAlternative? 1?
b. What is the annual worth of Alternative?2?
c. What is the IRR of the incremental cashflows of Alternative 2 compared to Alternative? 1?
d. Which alternative should be selected??
                                                               Alt.1              Alt. 2      Alt. 3
CapitalInvestment                                  -25,000  -60,000 -45,000
Annual Costs                                               -12,000-30,000 -20,000
AnnualRevenues                                         28,00057,500 38,000
Market Value at End of UsefulLife           9,000     9,000    9,000
Useful Life,years                                        5              5             6
IRR                                                      59.9%               37.7%    34.4%

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Calculation of Net Annual Cash FlowParticularAlternative1Alternative2Alternative3Annual Revenue280005750038000Annual Cost120003000020000Net Cash Flow160002750018000aCalculation of Payback PeriodPBPPayback period is the period in which the Cost of a project isrecovered from the revenues of the projectsFormulaPayback periodin case of equal cash flowsCost of aprojectAnnual Cash FlowsPBPAlternative1250001600015625 Years or 1year 7months approxb Calculation See Answer

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Three mutually exclusive investment alternatives are beingconsidered. The estimated cash flows for each alternative are givenbelow. The study period is 30 years and the? firm's MARR is 17% peryear. Assume repeatability and reinvestment of positive cashbalances at 17?% per year.a. What is the simple payback period forAlternative? 1?b. What is the annual worth of Alternative?2?c. What is the IRR of the incremental cashflows of Alternative 2 compared to Alternative? 1?d. Which alternative should be selected?? Alt.1 Alt. 2 Alt. 3CapitalInvestment -25,000 -60,000 -45,000Annual Costs -12,000-30,000 -20,000AnnualRevenues 28,00057,500 38,000Market Value at End of UsefulLife 9,000 9,000 9,000Useful Life,years 5 5 6IRR 59.9% 37.7% 34.4%