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We are working on a project. Two companies have bid on the project and we...

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Finance

We are working on a project.

Two companies have bid on the project and we are choosing from two machines.

This is a mutually exclusive project, we must pick one machine or the other but cannot pick both.

Machine A has an initial cost of $19,500 and a salvage value of $7500 (today's value) at the end of its 12 year life.

Machine B has an initial cost of $17,900 and a salvage value of $2300 (today's value) at the end of it's 6 year life.

Inflation is 3.9%

Dont forget, we will need to increase the costs and salvage values by inflation for any transaction other than year 0.

The company uses a MARR rate of 14%

Benefits for machine A in year 1 are $5,250 and increase by 5.5% per year.

Benefits for machine B in year 1 are $5,400 and increase by 5.5% per year.

Costs for each machine start at $800 and increase with the inflation rate

B. What is the NPW, the EUAW and the IRR for both of these machines?

C. Calculate the delta IRR for these two machines.

D. Create a graph for the NPW versus rate for these machines. Label clearly the IRR for machine a, the IRR for Machine B and the Delta IRR.

E. Create a MARR decision table based on the graph.

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