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Office Hours | D2L Brightspace | Dept of Composite Materials Engineering |
Department of Composite Materials Engineering
Stark Hall 203F (507) 457-5276 kdennehy@winona.edu
| CME 401 Engineering Ecomonics |
Selecting from Investment Alternatives
1. A company is considering five independent proposals for projects. The anticipated cash flows for the five projects are shown in the table below. Assuming the company has established a MARR of 15% and has a budget constraint of $500,000, which projects should the company select and what is the total investment?
| End of Year | Project 1 | Project 2 | Project 3 | Project 4 | Project 5 |
| 0 | -$100,000 | -$200,000 | -$150,000 | -$80,000 | -$300,000 |
| 1 | 35,027 | 77,258 | 63,516 | 32,000 | 98,769 |
| 2 | 35,027 | 77,258 | 63,516 | 32,000 | 98,769 |
| 3 | 35,027 | 77,258 | 63,516 | 32,000 | 98,769 |
| 4 | 35,027 | 77,258 | 63,516 | 32,000 | 98,769 |
2. A company is trying to determine the best machine to purchase. The choice has been reduced to five mutually exclusive alternatives with cash flows as shown in the table below. Which machine should the company purchase assuming unlimited funds are available (capital is not rationed) and the company's MARR is 7%? (Use the standard/challenger approach with the calculation of delta ROR to determine the answer.)
End of Year Machine 1 Machine 2 Machine 3 Machine 4 Machine 5 0 -$20,000 -$30,000 -$28,000 -$35,000 -$25,000 1 6,309.40 9,057.60 9,218.44 11,523.05 7,886.75 2 6,309.40 9,057.60 9,218.44 11,523.05 7,886.75 3 6,309.40 9,057.60 9,218.44 11,523.05 7,886.75 4 6,309.40 9,057.60 9,218.44 11,523.05 7,886.75
3. A company can purchase either of two alternative machines, A and B, with the characteristics shown below in the table. Assuming a MARR of 10%, which machine should be purchased? Determine by using (a) NPV and (b) EUAS. The repeatability assumption is applicable.
| Machine | Initial Outlay | Annual Net Cash Flow | Useful Life |
| A | $15,000 | $6,000 | 5 |
| B | 9,000 | 3,000 | 3 |