What is the Delta IRR of the difference between the cashflow of the machine with the higher initial value andthe lower initial value with the following data? Benefits are constant over all years. Machine A Machine BInitial cost $125,000 $175,000 Life in years 3 6 Salvage after life 15 % 15% Benefits per year $72,000 S81,000 Costs per year $15,800 $24, 200 Inflation 2.50% Costs keep increasing at 2.5% every year evenwhen a new machine is bought.

Delta IRR, also known as the Incremental Internal Rate of Return, is a financial metric used to…

Answered: What is the Delta IRR of the difference…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 18EB: Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the...

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Q1: For the machines indicated below. Consider i= 10% per year First cost Annual cost Salvage value Life duration Machine A 20,000 $ 5,000 $ 7,500 $ 3 Machine B 25,000 4,000 6,000 4 A- Draw cash flow diagram for each machine for one cycle of each project B- Draw cash flow diagram for each project considering the LCM life cycle (Hint: different project duration, need to have the LCM life cycle) C- Compare the machines to select best alternative one based on Present worth analysis method D- Repeat part B considering Future worth analysis
Compare the following two alternatives by the IRR method, given MARR of 6%/year. First find if they are feasible and then compare them with the incremental rate of return (AROR). Alt. Construction cost $ Benefits $/yr Salvage $ Service Life (yrs) A 410,000 55,000 20,000 11 B 250,000 35,000 10,000 11
The following information relates to machines A and B. Year Machine A Machine B Shs Shs 0 (100,000) (120,000) 1 60,000 50,000 2 40,000 50,000 3 20,000 50,000 Find the Internal Rate of Return (IRR) of the project at rates 10%)
Suppose a project has the following cash flows. What is the NPV if the cost of the project is $105,000 and the required return is 9.75%? Year Cash Flow $28.000 32,000 3 36,000 4 39,000 O$6,000 O $20,678 $1,193 $27,335 O $30,000 Page 16 of 30
Can you please do the following problems using the calculator not Excel 11-1 NPV Project L requires an initial outlay at t = 0 of $65,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 9%. What is the project's NPV? 11-2 IRR Refer to problem 11-1. What is the project's IRR? 11-3 MIRR Refer to problem 11-1. What is the project's MIRR? 11-4 PAYBACK PERIOD Refer to problem 11-1. What is the project's payback? 11-5 DISCOUNTED PAYBACK Refer to problem 11-1. What is the project's discounted payback?
What are the payback periods of projects E and F in the following table: Cash Flow E F Cost 44,000 95,000 Cash flow year 1 11,000 38,000 Cash flow year 2 11,000 28,500 Cash flow year 3 11,000 19,000 Cash flow year 4 11,000 9,500 Cash flow year 5 11,000 0 Cash flow year 6 11,000 0 Assume all the cash flow is evenly spread throughout the year. If the cutoff period is 3 years, which project(s) do you accept? What is the payback period for project?
The table bellow shows the cash flow for an engineering project, if the reinvestment rate of return e is 6% per year, the external rate of rate (EER) is : EOY Cash flow $ 13000 14 -2000 5 to 10 8000 Select one: O a 14.3% O b. 17.6% O G 7% O d. 20.1% O e. 10%
Consider the following cash flows: Year 0 1 2 3 4 5 6 Cash Flow -$9,000 $2,000 $3,600 $2,700 $2,100 $2,100 $1,600 C. IRR. Calculate the IRR for this project. The company’s required rate of return is 10%. Should it be accepted or rejected? D. NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected? E. PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?
The following two alternatives are given. Data A B. First Cost $8,200 $5,600 Annual Cost $1,000 $800 Annual Benefit $2,700 $2,100 Life, Years 7. Salvage Value $2,800 $1,000 Assume that MARR is 15%. Use the incremental rate of return analysis to determine which alternative (A or B) one should choose. Find the AIRR, or a range of AIRR. O 10% O 10-12% O 12-15% O > 15%
Coffer Company is analyzing two potential investments. Project X Cost of machine Net cash flow: Year 1 Year 2 $ 85,470 Project Y $ 65,000 33,000 33,000 3,000 30,000 Year 3 Year 4 33,000 0 • 30,000 25,000 If the company is using the payback period méthod, and it requires a payback period of three years or less, which project(s) should be selected? Multiple Choice Project Y. Project X. Both X and Y are acceptable projects. Neither X nor Y is an acceptable project.
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?

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