which of the following alternatives should be selected (if any). Each has an expected life of ten years.

Question

430 viewsOctober 6, 2016

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Darshita 6.14K October 6, 2016 0 Comments

Given a value of MARR at 10%, use incremental analysis to determine which of the following alternatives should be selected (if any). Each has an expected life of ten years.

Plan	1	2	3	4	Null
First Cost	$220,000	$100,000	$265,000	$180,000	$0
Annual Benefit	39,000	15,000	51,000	26,000	0

1 Answer

score 0 · Answer 1 · 2016-10-06T12:09:30+00:00

Answer: Prject : 3 should be accepted with NPV = $ 48,373.92

Working notes for the above answer is as under

First of all we will find NPV of the project as follow

Plan -1
Year	Initial Cost	Annual Benefit	MARR Factor@10%	Prasent Value
0	-220,000		1	-220000
1		39000	0.9090909	35454.55
2		39000	0.8264463	32231.4
3		39000	0.7513148	29301.28
4		39000	0.6830135	26637.52
5		39000	0.6209213	24215.93
6		39000	0.5644739	22014.48
7		39000	0.5131581	20013.17
8		39000	0.4665074	18193.79
9		39000	0.4240976	16539.81
10		39000	0.3855433	15036.19
				19638.12

Plan -2
Year	Initial Cost	Annual Benefit	MARR Factor@10%	Prasent Value
0	-100,000		1	-100000
1		15000	0.9090909	13636.36
2		15000	0.8264463	12396.69
3		15000	0.7513148	11269.72
4		15000	0.6830135	10245.2
5		15000	0.6209213	9313.82
6		15000	0.5644739	8467.109
7		15000	0.5131581	7697.372
8		15000	0.4665074	6997.611
9		15000	0.4240976	6361.464
10		15000	0.3855433	5783.149
				-7831.49

Plan -3
Year	Initial Cost	Annual Benefit	MARR Factor@10%	Prasent Value
0	-265,000		1	-265000
1		51000	0.9090909	46363.64
2		51000	0.8264463	42148.76
3		51000	0.7513148	38317.05
4		51000	0.6830135	34833.69
5		51000	0.6209213	31666.99
6		51000	0.5644739	28788.17
7		51000	0.5131581	26171.06
8		51000	0.4665074	23791.88
9		51000	0.4240976	21628.98
10		51000	0.3855433	19662.71
				48372.92

Plan -4
Year	Initial Cost	Annual Benefit	MARR Factor@10%	Prasent Value
0	-180,000		1	-180000
1		26000	0.9090909	23636.36
2		26000	0.8264463	21487.6
3		26000	0.7513148	19534.18
4		26000	0.6830135	17758.35
5		26000	0.6209213	16143.95
6		26000	0.5644739	14676.32
7		26000	0.5131581	13342.11
8		26000	0.4665074	12129.19
9		26000	0.4240976	11026.54
10		26000	0.3855433	10024.13
				-20241.3

So NPV of all project as per MARR 10% are as follow

Project	NPV
Project -1	19638.1171
Project -2	-7831.4934
Project -3	48372.9224
Project -4	-20241.255

From the above calculation we can see that, project -3 has highest NPV so the project-3 will be accepted.

1 Answer

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