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Consider the cost alternatives

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Consider the following cost alternatives with 10 year useful lives. The company has a MARR = 15%.

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initial          | Annual | Salvage |Alternative

investment | O&M   | value      |

                      | costs |                 |

________________________________________

50000          | 10000|35000     |   A

_____________________________________

55000          |9000    | 38000     |    B       

_____________________________________

60000          | 8300   | 41000     |      C

____________________________________

65000          | 7200   | 44000      |      D

____________________________________

70000          | 6600   | 47000      |      E

___________________________________

75000          | 5500   | 50000     |      F

____________________________________

a) Using suitable Excel functions, perform an incremental IRR analysis to determine the best alternative. Clearly lay out each step of the analysis and its conclusion.

b) Using suitable Excel functions, perform an incremental ERR analysis to determine the best alternative. Use an external borrowing/re-investment rate of ε = 12%. Clearly lay out each step of the analysis and its conclusion.

c) Compare the results of your analyses in Parts (a) and (b) and discuss the reason behind any differences.

Reference no: EM131185137

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