(14 pts) A company needs a new plant facility. There are three plant facility al
ID: 1154685 • Letter: #
Question
(14 pts) A company needs a new plant facility. There are three plant facility alternatives under consideration. You are to perform an economic analysis to select the most appropriate plant facility alternative. You have collected the following information for evaluation. Each alternative has a useful life of seven years. The company's MARR of 8% per yea selected? 3. r. Which plant facility should be Plant D1 Plant D2 Plant D3 Investment costs $55,000 $45,000 $80,000 Annual Expenses $6,250 $8,550 $3,200 Annual revenue $18,250 $16,750 $20,200 $18,000 $3,750 $22,000 Market value IRR 14.6%Explanation / Answer
Solution: Select Tool C
Working:
Tool B will not be taken into consideration further because its IRR < 8%.
PW A = -$55,000 + [($18,250 - $6,250) * (P/A, 8%, 7)] + [$18,000 * (P/F, 8%, 7)]
= -$55,000 + $12,000 * 5.2064 + $18,000 * 0.5835
= $17,980
PW C = -$80,000 + [($20,200 - $3,200) * (P/A, 8%, 7)] + [$22,000 * (P/F, 8%, 7)]
= -$80,000 + [$17,000 * 5.2064] + [$22,000 * 0.5835]
= $21,346
Choose Tool C because PW is higer
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