- Initial Investment Cost Annual Revenue Alternative A Invest Large 1 200 000 300 000 20 000 Annual Operation Cost Usef 1 (148.44 KiB) Viewed 49 times
Initial Investment Cost Annual Revenue Alternative A Invest Large $1,200,000 $300,000 $20,000 Annual Operation Cost Useful Life Market yalue at EoY 3 Alternative B Invest Medium $800,000 $248,000 $15,000 6 years $300,000 $80,000 Alternative C Invest Small $400,000 $200,000 $10,000 9 years 3 years Market value at EoY 6 $40,000 $600,000 $300,000 $120,000 Market value at EoY 9 The company's MARR is 10%. (a) If the study period is 9 years, which alternative should be chosen? State the main assumptions 9 made. (4 marks) (b) If the study period is 6 years, which alternative should be chosen? State the main assumptions made. (4 marks) (c) Do you expect the best alternative chosen in (a) and (b) to be always the same? Explain your answers. (1 mark) (d) If the study period is 3 years, determine which alternative should be chosen using any Discounted Cash Flow Method. State the main assumptions made. (4 marks) (e) If the study period is 3 years, i.e., the product life is expected to be only 3 years, determine which alternative should be chosen using the IRR Method. You may use any equation solver to compute IRRs after stating the relevant equations that need to be solved. (6 marks) o Do you expect the best alternative chosen in (d) and (e) to be always the same? Explain your answers. (1 mark)