At Miami Products, four project proposals (three with mutually exclusive alternatives) are being considered. All the alternatives

Question:

At Miami Products, four project proposals (three with mutually exclusive alternatives) are being considered. All the alternatives have a 10-year useful life and no salvage value.

(a) Use rate of return methods to determine which set of projects should be undertaken if the MARR is 10%.

(b) Use rate of return methods to determine which set of projects should, be undertaken if the capital budget is limited to $100,000.

(c) For a budget of $100,000, what interest rate should be used in rationing capital by present worth methods? (Limit your answer to a value for which there is a compound interest table available in the appendix)

(d) Using the interest rate determined in part (c), rank order the eight different investment opportunities by means of the present worth method.

(e) For a budget of $100,000 and the ranking in part (d), which of the investment opportunities should be selected?

Uniform Computed Annual Project Proposal (thousands) (thousands) Project 1 Alt. A Alt. B Cost Benefits Rate of Return $4

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Compound Interest
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound...