ORIE 451 Homework 2012 - 3 1000 4-2500 5 400 6 800 7 400 8...

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ORIE 4150/5150 Homework #4 Due February 24, 2012 1. Three mutually exclusive alternatives are being considered at a paper towel factory. The company’s MARR is 20%. Ignoring depreciation and taxes, which project, if any , should be selected? Project A Project B Project C Initial investment $2,000,000 $4,200,000 $7,000,000 Annual revenues 3,200,000 6,000,000 8,000,000 Annual costs 2,100,000 4,000,000 5,100,000 Salvage value 100,000 420,000 600,000 Useful life (years) 6 8 8 2. Calculate the IRR for the mixed cash flow stream below. The external rate of return is 15%. Use the method demonstrated in lecture. Time CF 0 -2000 1 3600 2 -1500
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Unformatted text preview: 3 1000 4-2500 5 400 6 800 7 400 8 1000 3. A new machine to make lithium ion batteries costs $35,000. It generates an annual cash flow of $10,000. At the beginning of year 5, it must be refurbished, which will cost $20,000. The life is 10 years. At the end of its life, the machine must be disposed of, which, due to the toxic chemicals built up on the machine, will cost $25,000. The external rate of return is 12%. Find the IRR of the machine. Hint: Be careful with how you record the refurbishment cost. Textbook Problems 6-34, 6-56, 6.81, 6.82, 6-83, 6-84, 6-85, 6-86...
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