Question: Technology Plus, LLC is evaluating three alternative solutions to an unreliable machine. The first alternative is to completely overhaul the present machine. The second alternative is to purchase a new machine, Model 5000, that would also enable increased revenues and therefore cash flow. Purchasing the Model 6000, would increase revenues plus reduce costs. The forecasted Cash Flows for each alternative are shown below.
a) Which one should be approved if IRR is the sole criteria and a MARR of 20% is used?
b) Which one should be approved if Present Worth is the sole criteria and a MARR of 20% is used?
| MARR= |
10% |
Cash Flow |
| Project |
Year |
0 |
1 |
2 |
3 |
4 |
5 |
|
Overhaul |
($25,000) |
$20,000 |
$20,000 |
$20,000 |
$20,000 |
$20,000 |
|
Model 5000 |
($150,000) |
$70,000 |
$80,000 |
$85,000 |
$85,000 |
$80,000 |
|
Model 6000 |
($350,000) |
$60,000 |
$100,000 |
$200,000 |
$200,000 |
$200,000 |