Problem A mechanical engineer at Anode Metals is considering five equivalent pro
ID: 2543452 • Letter: P
Question
Problem A mechanical engineer at Anode Metals is considering five equivalent projects, some of which have different life expectations Salvage value is nil for all alternatives. Assuming that the company's MARR is 13% per year, determine which should be selected (a) if they are independent and (b) if they are mutually exclusive. (c) Explain why your selection in part (b) is correct Net Annual Income, $/Year First Life, Years Cost, $ A 20,000 B 10.000 -15,000 D-60,000 -80000 +2.000 3.800 +11,0{1} +9,000 6 12 12Explanation / Answer
Project A
Year
Cash flow
PV Factor calculation
PV Factor
PV
0
$ (20,000)
1/(1.13)^0
1
$ (20,000)
1
5,500
1/(1.13)^1
0.884955752
4,867
2
5,500
1/(1.13)^2
0.783146683
4,307
3
5,500
1/(1.13)^3
0.693050162
3,812
4
5,500
1/(1.13)^4
0.613318728
3,373
IRR
3.92%
NPV
$(3,640)
Project B
Year
Cash flow A
PV Factor calculation
PV Factor
PV
0
$(10,000)
1/(1.13)^0
1
$ (10,000)
1
2,000
1/(1.13)^1
0.884955752
1,770
2
2,000
1/(1.13)^2
0.783146683
1,566
3
2,000
1/(1.13)^3
0.693050162
1,386
4
2,000
1/(1.13)^4
0.613318728
1,227
5
2,000
1/(1.13)^5
0.542759936
1,086
6
2,000
1/(1.13)^6
0.480318527
961
IRR
5.47%
NPV
$(2,005)
Project C
Year
Cash flow A
PV Factor calculation
PV Factor
PV
0
$(15,000)
1/(1.13)^0
1
$(15,000)
1
3,800
1/(1.13)^1
0.884955752
3,363
2
3,800
1/(1.13)^2
0.783146683
2,976
3
3,800
1/(1.13)^3
0.693050162
2,634
4
3,800
1/(1.13)^4
0.613318728
2,331
5
3,800
1/(1.13)^5
0.542759936
2,062
6
3,800
1/(1.13)^6
0.480318527
1,825
IRR
13.46%
NPV
$191
Project D
Year
Cash flow A
PV Factor calculation
PV Factor
PV
0
$(60,000)
1/(1.13)^0
1
$(60,000)
1
11,000
1/(1.13)^1
0.884955752
9,735
2
11,000
1/(1.13)^2
0.783146683
8,615
3
11,000
1/(1.13)^3
0.693050162
7,624
4
11,000
1/(1.13)^4
0.613318728
6,747
5
11,000
1/(1.13)^5
0.542759936
5,970
6
11,000
1/(1.13)^6
0.480318527
5,284
7
11,000
1/(1.13)^7
0.425060644
4,676
8
11,000
1/(1.13)^8
0.376159862
4,138
9
11,000
1/(1.13)^9
0.332884833
3,662
10
11,000
1/(1.13)^10
0.294588348
3,240
11
11,000
1/(1.13)^11
0.260697653
2,868
12
11,000
1/(1.13)^12
0.230705888
2,538
IRR
14.85%
NPV
$5,094
Project E
Year
Cash flow A
PV Factor calculation
PV Factor
PV
0
$(80,000)
1/(1.13)^0
1
$(80,000)
1
9,000
1/(1.13)^1
0.884955752
7,965
2
9,000
1/(1.13)^2
0.783146683
7,048
3
9,000
1/(1.13)^3
0.693050162
6,237
4
9,000
1/(1.13)^4
0.613318728
5,520
5
9,000
1/(1.13)^5
0.542759936
4,885
6
9,000
1/(1.13)^6
0.480318527
4,323
7
9,000
1/(1.13)^7
0.425060644
3,826
8
9,000
1/(1.13)^8
0.376159862
3,385
9
9,000
1/(1.13)^9
0.332884833
2,996
10
9,000
1/(1.13)^10
0.294588348
2,651
11
9,000
1/(1.13)^11
0.260697653
2,346
12
9,000
1/(1.13)^12
0.230705888
2,076
IRR
4.95%
NPV
$(26,741)
Project
A
B
C
D
E
NPV
$ (3,640.41)
$ (2,004.90)
$ 190.69
$ 5,094.12
$ (26,741.18)
IRR
3.92%
5.47%
13.46%
14.85%
4.95%
a)If projects are independent, project C and D should be accepted as NPV are positive and IRR is more than MARR.
b) If projects are mutually exclusive, project D should be accepted as NPV and IRR of project D is higher than project C.
Project A
Year
Cash flow
PV Factor calculation
PV Factor
PV
0
$ (20,000)
1/(1.13)^0
1
$ (20,000)
1
5,500
1/(1.13)^1
0.884955752
4,867
2
5,500
1/(1.13)^2
0.783146683
4,307
3
5,500
1/(1.13)^3
0.693050162
3,812
4
5,500
1/(1.13)^4
0.613318728
3,373
IRR
3.92%
NPV
$(3,640)
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