Automated Welding Services, Inc. (AWS) business has been growing and they need t

Question

Automated Welding Services, Inc. (AWS) business has been growing and they need to raise their automation to the next level. They have collected data on five alternative machines/processes for which the data is shown below. Only a single alternative will be selected. AWS uses a 5-year time horizon for project justifications. Submit your solution in a spreadsheet. 1. Determine which will offer the largest internal rate of return for AWS. 2.Determine using the internal rates of return criterion with an incremental analysis which will offer the largest monetary benefit to AWS if their MARR is 12%. 3.What is the difference between parts a and b? Altern- ative Investment in year 0 Annual Cash Flow Salvage value in last year A1 $50,000 $18,000 $0 A2 $250,000 $85,000 $75,000 A3 $350,000 $110,000 $175,000 A4 $600,000 $150,000 $400,000 A5 $800,000 $175,000 $600,000.

Please upload your solution using excel spreedsheet. thanks

Explanation / Answer

1.

A2 offers the largest internal rate of return for AWS

2.

using the internal rates of return criterion with an incremental analysis A5 offers the largest monetary benefit to AWS as the incremental analyisis IRR is greater than 12%

3.Part A suggests that A2 is the best alternative while part b suggests A5 is the best

A1 0 1 2 3 4 5 Cash flow -50000 18000 18000 18000 18000 18000 Salvage value 0 Net cash flow -50000 18000 18000 18000 18000 18000 Internal rate of return 23.44% A2 0 1 2 3 4 5 Cash flow -250000 85000 85000 85000 85000 85000 Salvage value 75000 Net cash flow -250000 85000 85000 85000 85000 160000 Internal rate of return 25.56% A3 0 1 2 3 4 5 Cash flow -350000 110000 110000 110000 110000 110000 Salvage value 175000 Net cash flow -350000 110000 110000 110000 110000 285000 Internal rate of return 25.38% A4 0 1 2 3 4 5 Cash flow -600000 150000 150000 150000 150000 150000 Salvage value 400000 Net cash flow -600000 150000 150000 150000 150000 550000 Internal rate of return 20.57% A5 0 1 2 3 4 5 Cash flow -800000 175000 175000 175000 175000 175000 Salvage value 600000 Net cash flow -800000 175000 175000 175000 175000 775000 Internal rate of return 18.41%

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