Rex Electric has decided to move into low-rise (2 to 8 floors) commercial buildi

Question

Rex Electric has decided to move into low-rise (2 to 8 floors) commercial building electrical wiring. After great success in upscale residential and small commercial wiring, they have identified four independent and indivisible investments, any or all of which will help make the move to the next level. Rex Electric's MARR is 10%. and $500.000 is available for investment immediately, with $175,000 available for follow-up investment the next year. The cash flows are shown below. Click here to access the TVM Factor Table Calculator Which alternatives should be selected by Rex Electric? Investment 1 Investment 2 Investment 3 Investment 4 What is the present worth for:he selected investment portfolio? S Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is plusminus 50. What is the IRR for the optimum portfolio? Carry all interim calculations to 5 decimal places and then round your final answer to 1 decimal place. The tolerance is plusminus0.2. Using SOLVER for sensitivity analysis: Determine the optimum portfolio and its PW using (1) the current limit on investment capital, (2) plus 20%, and (3) minus 20%. PW: S PW: S PW: S Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is plusminus 50. Again, using SOLVER for sensitivity analysis: Determine the optimum portfolio and its PW using (1) the current MARR. (2) plus 20%, and (3) minus 20%. PW: S PW: s

Explanation / Answer

Investment 4 should be selected as the the NPV is highest in that case

Year CF1 PV@10% CF2 PV@10% CF3 PV@10% CF4 PV@10% 0          (50,000)                                         (50,000)                                       (125,000)              (125,000)                  (200,000)                 (200,000)                                           (250,000)       (250,000) 1        (100,000)                                         (90,909)                                         (75,000)                (68,182)                      50,000                      45,455                                                75,000           68,182 2             50,000                                           41,322                                           70,000                   57,851                      50,000                      41,322                                                75,000           61,983 3             50,000                                           37,566                                           70,000                   52,592                      50,000                      37,566                                                75,000           56,349 4             50,000                                           34,151                                           70,000                   47,811                      50,000                      34,151                                                75,000           51,226 5             50,000                                           31,046                                           70,000                   43,464                      75,000                      46,569                                                75,000           46,569 6             50,000                                           28,224                                           70,000                   39,513                      75,000                      42,336                                                85,000           47,980 7             50,000                                           25,658                                           70,000                   35,921                      75,000                      38,487                                                85,000           43,618 8             50,000                                           23,325                                           70,000                   32,656                      75,000                      34,988                                                85,000           39,653 9             50,000                                           21,205                                           70,000                   29,687                      75,000                      31,807                                                85,000           36,048 10             75,000                                           28,916                                         100,000                   38,554                      75,000                      28,916                                             100,000           38,554 NPV                                         130,503                184,868                    181,596         240,163 IRR 27.59% 26.85% 26.28% 28.51%

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