Using incremental analysis, determine the best alternative using a 20 year analy

Question

Using incremental analysis, determine the best alternative using a 20 year analysis period. MARR = 10%. Hint: solve for ?1RR using NPW: 0. Alternative PW Cost $80,000 $12,000 $120,000 20,000 EUAB Show transcribed image text

Explanation / Answer

Ice cream store Gas Station Increment Year Cash flow Discount factor @19% Present value PW cost $             120,000 $        80,000 $        40,000 0 $ (40,000.00)       1.0000 $ (40,000.00) EUAB $               20,000 $        12,000 $          8,000 1 $      8,000.00       0.8373 $      6,698.48 2 $      8,000.00       0.7011 $      5,608.71 We need to calculate IRR. IRR is the rate at which NPW=0 3 $      8,000.00       0.5870 $      4,696.23 4 $      8,000.00       0.4915 $      3,932.21 @ 19% discount rate NPW=0 5 $      8,000.00       0.4116 $      3,292.48 6 $      8,000.00       0.3446 $      2,756.83 IRR 19.43% 7 $      8,000.00       0.2885 $      2,308.32 8 $      8,000.00       0.2416 $      1,932.78 IRR >MIRR so Ice cream store is the best alternative. 9 $      8,000.00       0.2023 $      1,618.34 10 $      8,000.00       0.1694 $      1,355.05 11 $      8,000.00       0.1418 $      1,134.60 12 $      8,000.00       0.1188 $         950.01 13 $      8,000.00       0.0994 $         795.45 14 $      8,000.00       0.0833 $         666.04 15 $      8,000.00       0.0697 $         557.68 16 $      8,000.00       0.0584 $         466.96 17 $      8,000.00       0.0489 $         390.99 18 $      8,000.00       0.0409 $         327.38 19 $      8,000.00       0.0343 $         274.12 20 $      8,000.00       0.0287 $         229.52 NPW $            (7.83)

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