Problem 2 Consider the following cash flow profiles for altermatives A and B. where you must choose between A, B and the DN alternatives: Row/Column MARR = 8% CF(A) -$250 EOY 3 CF(B) -$400 0. 4. 50 75 50 75 6. 3. 50 75 4. 50 75 8. 50 75 9. 6. 50 75 10 7. 50 75 11 8. 50 75 12 50 75 13 100 10 155 14 IRR ERR *These values include salvage values 15 a. What Excel function and parameter values would you enter into cell B14 to compute the value for IRR of A? b. What Excel function and parameter values would you enter into cell B15 to compute the value for ERR of A? c. Perform an IRR analysis and select the best alternative. Follow the required steps of an incremental analysis when DN is an option: PW(A) @ MARR > 0, therefore i = IRR(A) > MARR -> A is better than DN PW(B-A) @ MARR > 0, therefore ig-A> MARR -> choose larger investment B If you are asked to find the value of IRR of an alternative, you will need to bound the value of i' using trial and error. d. Perform an ERR analysis and select the best alternative. ERR(A) = 11.969% > MARR = 8%, therefore A is better than DN %3D %3D ERR(B-A) = 10.087% > MARR = 8%, therefore choose larger investment B %3D Problem 2 Consider the following cash flow profiles for altermatives A and B. where you must choose between A, B and the DN alternatives: Row/Column MARR = 8% CF(A) -$250 EOY 3 CF(B) -$400 0. 4. 50 75 50 75 6. 3. 50 75 4. 50 75 8. 50 75 9. 6. 50 75 10 7. 50 75 11 8. 50 75 12 50 75 13 100 10 155 14 IRR ERR *These values include salvage values 15 a. What Excel function and parameter values would you enter into cell B14 to compute the value for IRR of A? b. What Excel function and parameter values would you enter into cell B15 to compute the value for ERR of A? c. Perform an IRR analysis and select the best alternative. Follow the required steps of an incremental analysis when DN is an option: PW(A) @ MARR > 0, therefore i = IRR(A) > MARR -> A is better than DN PW(B-A) @ MARR > 0, therefore ig-A> MARR -> choose larger investment B If you are asked to find the value of IRR of an alternative, you will need to bound the value of i' using trial and error. d. Perform an ERR analysis and select the best alternative. ERR(A) = 11.969% > MARR = 8%, therefore A is better than DN %3D %3D ERR(B-A) = 10.087% > MARR = 8%, therefore choose larger investment B %3D