• Calculate the NPV, payback, IRR, and ARR.
• Analyze each alternative based on your calculations and illustratewhich alternative should yield the highest return.

See data to be used in the calculation below:

	Air Scrubbers	Furnace Fuel Change
Required Investment	$ 225,000	$ 150,000
Annual Cash Flows	$ 60,000	$ 56,000
Annual Net Income	$ 38,000	$ 34,000
Project Life	15 years	15 years
Average Book Value	$ 112,500	$ 75,000
Cost of Capital	10%	10%

Air Scrubbers		Furnace Fuel Change
Year	Average Net Income	Average Book Value		Year	Average Net Income	Average Book Value
1	38,000	$ 217,500		1	34,000	$ 145,000
2	38,000	202,500		2	34,000	135,000
3	38,000	187,500		3	34,000	125,000
4	38,000	172,500		4	34,000	115,000
5	38,000	157,500		5	34,000	105,000
6	38,000	142,500		6	34,000	95,000
7	38,000	127,500		7	34,000	85,000
8	38,000	112,500		8	34,000	75,000
9	38,000	97,500		9	34,000	65,000
10	38,000	82,500		10	34,000	55,000
11	38,000	67,500		11	34,000	45,000
12	38,000	52,500		12	34,000	35,000
13	38,000	37,500		13	34,000	25,000
14	38,000	22,500		14	34,000	15,000
15	38,000	7,500		15	34,000	5,000
Average	$ 38,000	$ 112,500		Average	$ 34,000	$ 75,000

Air Scrubbers Furnace Fuel Change Net Present Value using the Annuity Table to determine PV of cash flow Net Present Value using the Annuity Table to determine PV of cash flow NPV = Initial Cost + (Net Annual Cash Flow x Factor) Amount Factor Present Value NPV = Initial Cost + (Net Annual Cash Flow x Factor) Amount Factor Present Value Initial investment 1 Initial investment 1 PV of Annual net cash flow for 15 years PV of Annual net cash flow for 15 years Net present value Net present value S OR OR Net Present Value Using Excel to determine PV cash flow Net Present Value Using Excel to determine PV cash flow NPV = Initial Cost + PV of Cash Flow Present Value NPV = Initial Cost + PV of Cash Flow Present Value Initial investment Initial investment PV of Annual net cash flow for 15 years =PV(rate, value1,[value2]) PV of Annual net cash flow for 15 years =PV(rate, value1,[value2]) Net present value Net present value S Payback Period = Initial Investment / Net Annual Cash Flow Payback Period = Initial Investment / Net Annual Cash Flow Internal Rate of Return Internal Rate of Return Using Annuity Table Using Annuity Table OR OR Using Excel =IRR(M6:M21) use the IRR worksheet Using Excel =IRR(M26:M41) use the IRR worksheet Average Rate of Return = Ave Net Income / Ave Book Value of investment Average Rate of Return = Ave Net Income / Ave Book Value of investment