2- You are considering buying one of three pieces of equipment, “J”, “K”, or “L”
ID: 444614 • Letter: 2
Question
2- You are considering buying one of three pieces of equipment, “J”, “K”, or “L”. Their cash flows are summarized in the following table along with a typical cash flow diagram below.
Use the incremental rate of return to recommend the alternative that provides the best incremental rate of return. The MARR is 6% per year.
Cash Flow
“J”
“K”
“L”
First Cost ($)
Annual Operating Cost ($/year)
Annual Revenue ($/year)
Salvage Value
Life (years)
$4,000
$1,700
$2520.90
$0
7
$2,000
$1,200
$1584.14
$0
7
$2,800
$1,800
$2413.52
$0
7
Cash Flow
“J”
“K”
“L”
First Cost ($)
Annual Operating Cost ($/year)
Annual Revenue ($/year)
Salvage Value
Life (years)
$4,000
$1,700
$2520.90
$0
7
$2,000
$1,200
$1584.14
$0
7
$2,800
$1,800
$2413.52
$0
7
Explanation / Answer
Arrange the alternatives by increasing first cost.
As these are costs so there is no need to go for do nothing or DN comparison. since i value is not calculated.
In excel use formula for IRR=irr(d6:d13)
for equipment J IRR<MARR HENCE REJECTED
for equipment L IRR>MARR hence it is accepted.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.