Problem 5. (20points) An electronics company is trying to determine to which new

Question

Problem 5. (20points) An electronics company is trying to determine to which new product they shov limited capital resources. (There is not enough investment capital information in the following table shows the estimated net c proposed products. mit their for both products). T he ash flow for each of the two End of year, k Product Product 2 150,000 130,000 230,000 330,000 11.0% 50,000 IRR 12.6% If the MARR 10% per year, show that the same project selection would be made with proper application of (a) PW method, and (b) the IRR method.

Explanation / Answer

A. PW METHOD = As per this method product B should be select as it have Net Present Worth more than Product A

B. As per IRR methos product A should select as it have more IPP than product B

Product 1 Year Particular MARR @ 10% Cash Flow Dis. Cash Flow 0 Initial Investment 1        -1,50,000            -1,50,000 1 Cash Flow 0.9091              50,000                 45,455 2 Cash Flow 0.8264              50,000                 41,322 3 Cash Flow 0.7513              50,000                 37,566 4 Cash Flow 0.6830              50,000                 34,151 NET PRESENT WORTH                   8,493

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