9.23 and 9.24 plz CHOO SING AMONG INVESTMENT ALTERNATIVES 89 9.21 The capital bu

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9.23 and 9.24 plz

CHOO SING AMONG INVESTMENT ALTERNATIVES 89 9.21 The capital budgeting committee of the ABC Company is contemplating five independent proposals for included in the forthcoming year's budget; their cash flows are given in Table 9-13. The Company has established a MARR of 20%. Assuming that capital is not rationed, which projects projects to be should the company select and what is the total investment require d? Use the ROR method Table 9-13 End of Year Project Project 2 Project 3 Project 4Project S 0$100 000-$20000010000300 000 35 027 35 027 35 027 35 027 98 769 98 769 98 769 98 769 77 258 63 516 32 000 63 516 32000 63 516 63516 32000 77 258 77 258 32 000 i:-15%,i be selected, at a total investment of $430 000 Ans. -20% s-25%, i:-21RS% (by interpolation) n-12% Projecs2,3, and i should would the results of Problem 921 change if (a) MARR-10%? (b) MARR= 13% and capital is rationed at S430 000? 9.22 Ans. (a) no: (b) no 9.2 How would the results of Problem 9 21 change if the MARR is 13%, the budget constraint is S480000. and all the projects are divisible into smaller projects? (sn Ans. Select projeets 2, 3, and 4, and spend $50 000 on project 1 the sre ndpdent How would the results of Problern 923 change it the MARR is 16% and none of the poles are divisible? Ans. Select projects 2, 3, and 4, and leave $50 000 unspent 9.25 Would the results of Problem 9.24 change if all the projects were divisible? Ans. no The executives of the XYZ Company are attempting to determine the economically best process-control computer to purchase for one of their production lines. The choice has been narrowed to the five mutually exclusive alternatives whose cash flows are presented in Table 9-14. If capital is not rationed and the MARR is 7%, which computer should the company purchase? Ans. C or D 9.26 Table 9-14 ComputerComputer Computer Computer Year 0 $20 000300028000 3000 $25 000 6309.409057.60 6309.409057.60 9218.4411523.05 6309.40 6 309.40 9 218.4411523.05 7886.75 7886.75 9057.609218.44 11523.05 7886.75 9057.609218.4411523.05 7886.75 9.27 Will the re Ans. (a) no; (b) no; (c) yes (none of the alternatives sult of Problem 9.26 change if the MARR is (a) 10%? (b) 11%? (c) 13%?

Explanation / Answer

Since projects are divisible and MARR is 13% i.e. minimum return required by the company is 13% thus merit will be given to the projects who has highest ROR.

Project 3, 4 and 2 have highest ROR of 25%, 21.85% and 20%

Total Capital required for this 3 projects is as below

Balance capital to be invested is 50,000 (4,80,000-4,30,000)

Since projects are divisible balance money can be invested in remaining best suitable investment project which has ROR greater than MARR of 13%, which is Project 1 that has ROR of 15% as against Project 5 with ROR of 12%

Hope my answer would help you Buddy!!

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Sr. No. Project No. Amount Required A 3 1,50,000 B 4 80,000 C 2 2,00,000 Total Investment 4,30,000

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