(14 pts) A company needs a new plant facility. There are three plant facility al

Question

(14 pts) A company needs a new plant facility. There are three plant facility alternatives under consideration. You are to perform an economic analysis to select the most appropriate plant facility alternative. You have collected the following information for evaluation. Each alternative has a useful life of severn years. The company's MARR of 8% per year. Which plant facility should be selected? 3. Plant D1 Plant D2 Plant D3 Investment costs $55,000 $45,000 $80,000 Annual Expenses $6,250 $8,550 Annual revenue $18,250 $16,750 $20,200 Market value IRR $3,200 $22,000 $18,000 $3,750 14,696

Explanation / Answer

Solution:

Tool B would not be considered further as its IRR < 8%.

PW-A = -$55,000 + [($18,250 - $6,250)(P/A, 8%, 7)] + [$18,000(P/F, 8%, 7)] = $17,980

PW-C = -$80,000 + [($20,200 - $3,200)(P/A, 8%, 7)] + [$22,000(P/F, 8%, 7)] = $21,346

Choose Tool C

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