You are a water filter manufacturer trying to decide if you should invest in an automatic...

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Accounting

You are a water filter manufacturer trying to decide if youshould invest in an automatic or manually operated machinery. Bothalternatives’ present costs are pegged at $5000, however, they leadto different revenue patterns thereafter. The automatic machineallows for higher production levels and thus more revenuesimmediately, however more energy costs over time than the manualmachine means that net revenues diminish over time. The manualmachine does not produce as many filters initially but has noenergy cost, so its net revenues increase over time. The expectednet revenues of the automatic machine are: $3200, $1500, $690, and$310 by the ends of years one to four, respectively. The expectednet revenues for the manual machine are $280, $710, $1900, and$3000 by the ends of years one to four, respectively. 1. Calculatethe Internal Rate of Return of each alternative and compare them.Which is more feasible? 2. Knowing the MARR is 8%, use NPW analysisto compare these alternatives and find out which one is better. 3.Calculate the benefit cost ratio of the both alternatives.

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4.3 Ratings (828 Votes)

1INTERNAL RATE OF RETURNIRRformula for IRR lower rate NPV at lower rate NPV atlower rate NPV at higher rate higher ratelower ratehere lets assume that the lower rate is 8 and higher rate is12from the given calculations in excel we can understand thatautomatic machine have higher internal rate of return which is 83than manual machine which is 47this See Answer

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