Dark Skies Observatory is considering several options to purchase a new deep spa
ID: 2774543 • Letter: D
Question
Dark Skies Observatory is considering several options to purchase a new deep space telescope. Revenue would be generated from the telescope by selling “time and use” slots to various researchers around the world. Four possible telescopes have been identified in addition to the possibility of not buying a telescope if none are financially attractive. The table below details the characteristics of each telescope. An internal rate of return analysis is to be performed.
T1
T2
T3
T4
Useful Life
10 years
10 years
10 years
10 years
First Cost
$600,000
$800,000
$470,000
$540,000
Salvage Value
$70,000
$130,000
$65,000
$200,000
Annual Revenue
$400,000
$600,000
$260,000
$320,000
Annual Expense
$130,000
$270,000
$70,000
$120,000
(a) Determine the preferred telescope if MARR is 25%/yr.
(b) Determine the preferred telescope if MARR is 42%/yr.
T1
T2
T3
T4
Useful Life
10 years
10 years
10 years
10 years
First Cost
$600,000
$800,000
$470,000
$540,000
Salvage Value
$70,000
$130,000
$65,000
$200,000
Annual Revenue
$400,000
$600,000
$260,000
$320,000
Annual Expense
$130,000
$270,000
$70,000
$120,000
Explanation / Answer
(a) Determine the preferred telescope if MARR is 25%/yr.
All telescope are prefered if MARR is 25% since IRR of all telescope is greater than 25%
Note : if we are to select one of telescope in it than T1 is most prefered among them
(b) Determine the preferred telescope if MARR is 42%/yr.
T1 is the preferred telescope if MARR is 42%/yr as its IRR is greater than 42%
Working
T1 T2 T3 T4 Useful Life 10 years 10 years 10 years 10 years First Cost 600,000 800,000 470,000 540,000 Salvage Value 70,000 130,000 65,000 200,000 Annual Revenue 400,000 600,000 260,000 320,000 Annual Expense 130,000 270,000 70,000 120,000 Annual Cash Flow 270,000 330,000 190,000 200,000 IRR 43.96% 40.05% 39.14% 35.94%Related Questions
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