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Category > Engineering Posted 29 May 2017 My Price 6.00

Last week Eduardo calculated the overall project ROR values for two alternatives A

 

Last week Eduardo calculated the overall project ROR values for two alternatives A and B using the estimates below. He calculated iA* _ 34.2% and iB* _ 31.2% and recommended acceptance of A since its rate of return exceeded the established MARR of 30% by a greater amount than project B. Yesterday, the general manager of the company announced a major capital investment program, which includes a large drop in the MARR from 30% to 20% per year. Do the following to help Eduardo better understand the rate of return method and what this reduction in MARR means.

(a) Explain the error that Eduardo made in performing the rate of return analysis.

(b) Perform the correct analysis using each MARR value.

(c) Illustrate the ranking inconsistency problem using the two MARR values, and determine the maximum MARR that will justify alternative

B.

 

Alternative A

Alternative B

First cost, $

40,000

85,000

Annual operating cost,

5,500

15,000

$ per year

 

 

Annual revenue, $ per year

22,000

45,000

Salvage value, $

0

20,000

Life, years

6

6

i *, %

34.2

29.2

 

 

 

 
 

Answers

Alpha Geek
(8)
Status NEW Posted 29 May 2017 07:05 AM My Price 6.00

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file 1496043071-Answer.docx preview (261 words )
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