Which tractor is better using the net present worth method

Reference no: EM13236949

A mega agricultural operation is considering the purchase of a new tractor. The cash flows and other relevant information for the two tractors under review are provided in the following Table:

Tractor Parameters Alpha Beta

Initial Cost $250,000 300,000
Annual revenues generated $300,000 190,000
Annual increase in operating revenues 10%

Annual operating costs $175,000 260,000
Annual increase in operating costs $15,000

Overhaul EOY 4 $50,000
End-of-life salvage value $50,000 70,000
Useful life 5 years 10 years

MARR = 10%

1. Which tractor is better using the Net Present Worth (NPW) method?
2. Which tractor is better using the Internal Rate of Return (IRR) method?
3. Which tractor is better using the Discounted Payback Method if the average recovery period (industry threshold) for this type of equipment is 3 years?

Reference no: EM13236949

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