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Cost Estimation: IRR and Future Worth

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Please help with the following problems.

1a. If you solve for an Internal Rate of Return (IRR) using a present worth equation, what value do you set the present worth to in order to solve the equation?

b. Jack Black, engineer extraordinaire, had just returned from taking a 30-page exam in his engineering management graduate program. His boss, Lucy (who certainly had a thing for diamonds and atmospheric sciences) asked Joe to evaluate a new project. Because Jack was quite discombobulated from his testing extravaganza he had a tough time. He persevered and brought Lucy two answers. A future worth that was > 0 and a present worth that was < 0. What should Lucy say to Jack?

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Solution Preview

a. If it is an investment analysis, the cash flow in Year 0 or the initial investment would be set as the present worth. For example, if there a project that requires an initial outlay of $5,000 in Year 0 for which it returns ...

Solution Summary

This solution helps with questions regarding cost estimation. It helps calculate the rate of return and future worth.

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Depreciation (straight line , sum of years digits and MACRS) ; Investment Appraisal (Present Worth Analysis, Annual Cash Flow Analysism Rate of Retun Analyis, Future Worth Analyis, Benefit-Cost ratio analyis)

This two problems MUST be done in excel format. Please include explanation

1. Office equipment whose initial cost is $100,000 has an estimate actual life of 6 years , with an estimated salvage value of $10,000. Prepare tables listing the annual cost of depreciation and the book value at the end of each 6 years , based on the straight line , sum of years digits and MACRS depreciation.

2. A corporation with $7 million in annual taxable income is considering two alternatives:

Year Alternative1 Alternative2
0 -$10,000 -$20,000
1-10 $4500 $4500
11-20 $0 $4500

Both alternatives will be depreciated by straigh -line depreciation assuming a 10 year depreciable life and no salvage value.Neither alternative is to be replaced at the end of its useful life. If the corporation has a minimum atractive rate of retun of 10% after taxes , which alternative should i choose? Solve the problem by:

Present Worth Analysis
Annual Cash Flow Analysis
Rate of Retun Analyis
Future Worth Analyis
Benefit-Cost ratio analyis

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