Determine the return on invested capital, Financial Management

1.      Consider the following two investment alternatives


Net cash flow


End of year

Machine A

Machine B













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.

End of year

Project A1

Project A2










Rate of Return



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.

Posted Date: 3/2/2013 2:45:53 AM | Location : United States

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