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Category > Economics Posted 22 Jun 2017 My Price 7.00

Capital Budgeting

Capital Budgeting
Mike Moore’s microbrewery is considering production of a new ale called Mike’s Honey Harvest Brew. To
introduce this new offering, Mike is considering two independent projects. Each of these projects has
two mutually exclusive alternatives, and each alternative has a useful life of 10 years and no salvage
value. Mike’s MARR is 8%. Information regarding the projects and alternatives are given in the following
table.
Project/Alternative
Project 1: Purchase New
Fermenting Tanks
Alt. A: 5000-gallon tank
Alt. B: 15000-gallon tank
Project 2: Purchase Bottle-Filler
& Capper
Alt. A: 2500-bottle/hour
machine
Alt. B: 500-bottle/hour machine Cost Annual Benefit $5000
$10000 $1192
$1992 $15000 $3337 $25000 $4425 Use incremental rate of return analysis to complete the following worksheet.
Proj./Alt.
1A
1B-1A
2A
2B-2A Cost, P
$5000
$5000
$15000
$10000 Annual Benefit, A
$1192
$800
$3337 (A/P, i, 10)
0.2385
0.1601 Use this information to determine:
(a) Which projects should be funded if only $15,000 is available
(b) The cutoff rate of return if only $15,000 is available
(c) Which projects should be funded if $25,000 is available IRR
20%

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SuperTutor
(15)
Status NEW Posted 22 Jun 2017 12:06 AM My Price 7.00

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