1. Consider the following two investment alternatives
Net cash flow
End of year
Machine A
Machine B
0
-$2,800
-2000
1
-1900
-2500
2
-1800
3
-1700
+200
Suppose that your firm needs either machine for only 2 years. The net proceeds from the sale of machine B are estimated to be $200. What should be the net proceeds from the sale of machine A so that both machines could be considered economically indifferent at an interest rate of 10%?
2. Consider the following two mutually exclusive investment proposals.
Project A1
Project A2
-200
-300
200
440
243
100
Rate of Return
71.03%
66.66%
a) Determine the range of MARR where project A1 is preferred over project A2
b) If you use the NPW criterion at Marr=15%, project A2 will be selected. Using the internal rate of return criterion, demonstrate that you will select the same project at MARR of 15%. In doing so, determine the return on invested capital.