Reference no: EM131060482
Complete the following problems using an Excel spreadsheet. You must show your work to get full credit. Each student is responsible for completing their own response to the problems.
1. A plant engineer is considering two machines to purchase:
Item Model A Model B
Initial Cost $8,000 $9,000
Annual Savings $1,750 $2,000
Annual Maintenance $200 $350
Expected Life 8 years 8 years
Salvage Value $800 $900
The firm's MARR is 10%. On the basis of the IRR criterion, which machine is the better choice?
2. Assume that you are planning on purchasing a Tesla Model 3 for $35,000. You will be able to make a down payment of $5,000. The remaining $30,000 will be financed by the dealer. The dealer computes your monthly payment to be $775.00 for 48 months of financing. What is the dealer's annual rate of return on this car loan?
3. Consider the following projects with the following sequences of cash flows:
Period Net Cash Flow
n A B C D
0 $45,000 -$15,000 -$12,500 $10,000
1 -$15,000 -$15,000 $5,000 -$9,000
2 -$15,000 -$15,000 $5,000 -$11,500
3 -$20,000 $60,000 $3,000 $10,000
a) Which of the projects represent simple investments?
b) Which of the projects represent nonsimple investments?
c) Compute the i* for each project.
d) Which of the projects has no rate of return?
4. Consider the following project's cash flows:
n Net Cash Flow
0 -$20,000
1 $7,500
2 X
3 $10,000
Assume that the project's IRR is 15%.
a) Find the value of X.
b) Is the project acceptable at MARR = 12%?
5. Consider two investments with the following sequences of cash flows:
n Project A Project B
0 -$150,000 -$175,000
1 $45,000 $30,000
2 $55,000 $65,000
3 $75,000 $95,000
4 $80,000 $100,000
a) Computer the IRR for each investment.
b) At MARR = 15%, consider the acceptability of each project.
c) If A and B are mutually exclusive projects, which project would you select on the basis of the rate of return on incremental investment?
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