Consider the following computer proposals:
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Tractor A
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Tractor B
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Tractor C
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Initial Investment (P)
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$110,000
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108,000
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125,000
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Salvage Value (SV)
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$10,000
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0
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0
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Life (Duration)
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5 years
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5
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10
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MARR (%)
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10
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10
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10
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Net Cash Flows
(Cash flows exclude salvage values)
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End of Year 1
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50-25
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60-40
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35-16
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.... Year 2
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53-26.25
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66-40
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35-17
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.... Year 3
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56-27.563
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72.6-40
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35-18
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.... Year 4
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59-28.941
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79.86-50
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35-19
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.... Year 5
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62-30.387
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87.846-45
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35-20
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.... Year 6
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50-21
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.... Year 7
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50-22
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.... Year 8
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50-23
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.... Year 9
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50-24
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.... Year 10
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50-25
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C. Assignment Questions
C1. The Net Present Worth (NPW) of tractor A to the nearest $10 is
a) $2570; b) $2590; c) $3000; d) None of these answers.
C2. The Net Present Worth of tractor B to the nearest $10 is
a) $3200; b) $3160; c) $3180; d) None of these answers.
C3. The Net Present Worth (NPW) tractor C to the nearest $10 is
a) $4200; b) $4160; c) $4170; d) None of these answers.
C4. The best tractor based on the Net Present Worth (NPW) method is
a) A; b) B; c) C; d) None of the tractors is valid.
C5. The external rate of return (ERR) of tractor A is
a) 10.6%; b) 10.8%; c) 10.5%; d) None of these answers.
C6. The external rate of return (ERR) of tractor B is
a) 10.6%; b) 10.4%; c) 10.5%; d) None of these answers.
C7. The external rate of return (ERR) of tractor C is
a) 10.6%; b) 10.4%; c) 10.5%; d) None of these answers.
C8. The incremental external rate of return (ΔERR) between tractors A and B is
a) 12.4%; b) 12.9%; c) 12.3%; d) None of these answers.
C9. The incremental external rate of return (ΔERR) between tractors B and C is
a) 9.6%; b) 9.8%; c) 9.7%; d) None of these answers.
C10. The best tractor based on the incremental external rate of return (ΔERR) is
a) A; b) B; c) C; d) None of the tractors is valid.
C11. Based on the discounted payback method (MARR = 10%), tractor A's recovery period (indicate the fraction of a year to one decimal where required) is
a) 5 years; b) 5.1 years; c) 4.9 years; d) 4.8 years; e) None of these answers.
C12. Based on the discounted payback method (MARR = 10%), tractor B's recovery period (indicate the fraction of a year to one decimal where required) is
a) 5 years; b) 5.1 years; c) 4.9 years; d) 4.8 years; e) None of these answers.
C13. Based on the discounted payback method, tractor C's recovery period (indicate the fraction of a year to one decimal where required) is
a) 5 years; b) 5.1 years; c) 4.9 years; d) 4.8 years; e) None of these answers.
C14. If the industry standard for these tractors is 4 years, is tractor A acceptable (i.e., valid)?
a) Yes; b) No; c) Need more information.
C15. If the industry standard for these tractors is 7 years, is tractor C acceptable (valid)?
a) Yes b) No c) Need more information to determine the better tractor.
C16. If the industry standard for these tractors is 7 years, is tractor A better than tractor B?
a) Yes b) No c) Need more information to determine the better tractor.
C17. If the industry standard for these tractors is 7 years, is tractor A better than tractor C?
a) Yes b) No c) Need more information to determine the better tractor.
C18. If a particular tractor (A or B or C) is found to be the best choice with the Net Present Worth (NPW), must it also be the best choice based on the discounted payback method?
a) The two decision criteria must always come to the same conclusion.
b) There is no reason why the two decision criteria must come to the same conclusion.
C19. If MARR > 0%, a project's recovery period will be
a) shorter with the discounted payback method than with the simple payback method
b) longer with the discounted payback method than with the simple payback method
c) the same with either payback method.