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 10?%per year. Assume repeatability and reinvestment of positive cashbalances at 10?% per year.
a. What is the simple payback period for Alternative? 1?
b. What is the annual worth of Alternative? 2?
c. What is the IRR of the incremental cash flows of Alternative2 compared to Alternative? 1?
d. Which alternative should be selected??
Alt. 1   Alt. 2   Alt. 3
Capital Investment -30,000   -60,000  -40,000
Annual Costs -14,000   -34,000   -27,000
Annual Revenues 27,000   55,500   36,000
Market Value at End of Useful Life   9,000  9,000   9,000
Useful Life, years 5 5 6
IRR 36.5%   25.6%   13.2%

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4.3 Ratings (787 Votes)

aPayback Alt 1231bNPV of Alt 26736783Annual worth of Alt 2714633cIRR of incremental cash flow1286dNPV of Alt 16184294NPV of Alt 26736783NPV of Alt 3925884Select Alt 2 since it has the highest NPVCash flows are as 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 10?%per year. Assume repeatability and reinvestment of positive cashbalances at 10?% per year.a. What is the simple payback period for Alternative? 1?b. What is the annual worth of Alternative? 2?c. What is the IRR of the incremental cash flows of Alternative2 compared to Alternative? 1?d. Which alternative should be selected??Alt. 1 Alt. 2 Alt. 3Capital Investment -30,000 -60,000 -40,000Annual Costs -14,000 -34,000 -27,000Annual Revenues 27,000 55,500 36,000Market Value at End of Useful Life 9,000 9,000 9,000Useful Life, years 5 5 6IRR 36.5% 25.6% 13.2%