B 1 Chapter 7 Problem 18 2 3 4 a 5 b. 6 c. 7 d 8 e. 9 f 0 1 2 3 4 5 6 7 3 Initial investment Annual receipts Annual disbursements Annual depreciation Expected life (years) Salvage value D Alternative 1 $55,000 $50,000 A company is considering two mutually exclusive methods of producing a new product. The relevant data concerning the alternatives Calculate the net present value of each alternative Calculate the benefit-cost ratio for each alternative. $20,000 $16,000 4 SO E Calculate the internal rate of return for each alternative. If the company is not under capital rationing which alternative should be chosen? Why? Again assuming no capital rationing, suppose the company plans to produce the product indefinitely rather than quit when the equipment If the company is experiencing capital rationing, and plans to terminate production when the equipment wears out, which alternative should F Alternative 2 $120,000 $60,000 $12,000 $20,000 6 $0 G H Other Assumptions Tax rate Discount rate 50% 10%