What are the break even savings for alternative b

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Reference no: EM131374883

Fantastic Footwear can invest in one of two different automated clicker cutters. The first, A, has a 100 000 yuan first cost. A similar one, B, with many extra features, has a first cost of 400 000 yuan. A will save 50 000 yuan per year over the cutter now in use. B will save between 120 000 yuan and 150 000 yuan per year. Each clicker cutter will last five years and have a zero scrap value.
(a) If the ALARR is 10%, and B will save 150 000 yuan per year, which alternative is better?

(b) B will save between 120 000 wa n and 150 000 yuan per year. Determine the IRR for the incremental investment from A to B for this range, in increments of 5000 yuan. Plot savings of B versus the IRR of the incremental investment. Over what range of savings per year is your answer from part (a) valid? What are the break-even savings for alternative B such that below this amount, A is preferred and above this amount, B is preferred?

Reference no: EM131374883

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