1 Assignment 2 ITEC 3800 Spring 2020 3 We are working on a project. 4 Two companies have bid on the project and we are choosing from two machines. 5 This is a mutually exclusive project, we must pick one machine or the other but cannot pick both. 7 Machine A has an initial cost of $19,500 and a salvage value of $7500 (today's value) at the end of its 12 year life. 8 Machine B has an initial cost of $17,900 and a salvage value of $2300 (today's value) at the end of it's 6 year life. 9 Inflation is 3.9% 10 Don't forget, we will need to increase the costs and salvage values by inflation for any transaction other than year 0. 11 The company uses a MARR rate of 14% 12 Benefits for machine A in year 1 are $5,250 and increase by 5.5% per year. 13 Benefits for machine B in year 1 are $5,400 and increase by 5,5% per year. 14 Costs for each machine start at $800 and increase with the inflation rate 16 Points 20 A. Show the Cash flow table for these two machines over the project. 20 B. What is the NPW, the EUAW and the IRR for both of these machine 20 C. Calculate the delta IRR for these two machines. 20 D. Create a graph for the NPW versus rate for machines. Label clearly the IRR for machine a, the IRR for Macine B and the Delta IRR. 20 E. Create a MARR decision table based on the 365 1 Assignment 2 ITEC 3800 Spring 2020 3 We are working on a project. 4 Two companies have bid on the project and we are choosing from two machines. 5 This is a mutually exclusive project, we must pick one machine or the other but cannot pick both. 7 Machine A has an initial cost of $19,500 and a salvage value of $7500 (today's value) at the end of its 12 year life. 8 Machine B has an initial cost of $17,900 and a salvage value of $2300 (today's value) at the end of it's 6 year life. 9 Inflation is 3.9% 10 Don't forget, we will need to increase the costs and salvage values by inflation for any transaction other than year 0. 11 The company uses a MARR rate of 14% 12 Benefits for machine A in year 1 are $5,250 and increase by 5.5% per year. 13 Benefits for machine B in year 1 are $5,400 and increase by 5,5% per year. 14 Costs for each machine start at $800 and increase with the inflation rate 16 Points 20 A. Show the Cash flow table for these two machines over the project. 20 B. What is the NPW, the EUAW and the IRR for both of these machine 20 C. Calculate the delta IRR for these two machines. 20 D. Create a graph for the NPW versus rate for machines. Label clearly the IRR for machine a, the IRR for Macine B and the Delta IRR. 20 E. Create a MARR decision table based on the 365