Ganymede Inc. has decided to acquire a new weather satellite. After considering

Question

Ganymede Inc. has decided to acquire a new weather satellite. After considering several options it has narrowed its search to two satellites. Satellite Pluto: purchase cost of $306083 and operating costs of $26011 per year (paid at the end of each year). Satellite Triton: purchase cost of $180082 and operating costs of $61929 per year (paid at the end of each year). Both satellites have a service life of 14 years. Based on the defender-challenger approach and given that the MARR is 10%, reinvestment rate is 6%, and minimum external rate of return is 6%, compute the incremental external rate of return of choosing the most expensive satellite. Note: round your answer to two decimal places, and do not include spaces, percentage signs, plus or minus signs, nor commas. If your answer is 15%, write 15, not 0.15) Answer is 13.64 I just can't figure out the work.

Explanation / Answer

Finance Rate 10% Reinestment rate 6% Year Pluto Triton Incremental Fv $1 at 6% F.V of inc flow 0        -3,06,083        -1,80,082        -1,26,001 1            -26,011            -61,929              35,918 2.13292826        76,610.52 2            -26,011            -61,929              35,918 2.012196472        72,274.07 3            -26,011            -61,929              35,918 1.898298558        68,183.09 4            -26,011            -61,929              35,918 1.790847697        64,323.67 5            -26,011            -61,929              35,918 1.689478959        60,682.71 6            -26,011            -61,929              35,918 1.593848075        57,247.84 7            -26,011            -61,929              35,918 1.503630259        54,007.39 8            -26,011            -61,929              35,918 1.418519112        50,950.37 9            -26,011            -61,929              35,918 1.338225578        48,066.39 10            -26,011            -61,929              35,918 1.26247696        45,345.65 11            -26,011            -61,929              35,918 1.191016        42,778.91 12            -26,011            -61,929              35,918 1.1236        40,357.46 13            -26,011            -61,929              35,918 1.06        38,073.08 14            -26,011            -61,929              35,918 1        35,918.00     7,54,819.14 MIRR=(754,819.14/126001)^(1/3)-1               13.64

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