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Alphas External Rate of Return (ERR).
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Gammas External Rate of Return (ERR).
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The incremental External Rate of Return (ERR) between Alpha and Gamma.
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The incremental External Rate of Return (ERR) between Beta and Gamma.
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Does the conclusion on the best pump based on the AEW criterion match the conclusion based on the incremental ERR criterion?
Sabino Company is considering the purchase of a new heavy-duty industrial waste water pump. Suppliers and experts have been consulted and the choice has been narrowed down to three pump models: Alpha, Beta and Gamma. The key parameters of the three pump models are shown below. Parameters Alpha Beta Gamma 1. Initial Cost 330,000 365,000 ($) 415,000 280,000 at EOY1 360,000 at EOY1 450,000 at EOY1 2. Revenues increasing decreasing increasing ($) annually annually annually thereafter thereafter by thereafter by 2% by 1.0% $10,000 190,000 at EOY1 230,000 at EOY1 3. Operating increasing 312,000 at EOY1 costs increasing annually annually ($) increasing annually thereafter by thereafter by thereafter by $20,000 3% $2,400 4. End-of-life salvage 10,000 -15,000 10,000 value ($) 5. Useful life 5 5 (years) 10 All pump names and parameter values are fictitious. EOY = End-of-year Industry Standard = 3 years MARR = 10% DISCRETE CASH FLOWS AND DISCRETE COMPOUNDING DISCRETE RATE OF INTEREST 1% 0.1000 k%= 0.1200 10.00 % FIP/% PFP (AP,1%) PIA%. (AF/%) FIA/%A/G,1%) P/9,1%) (FIG.1%) PIC.IND PIC.L.K.NO 1 2 3 4 5 6 7 8 9 0.9091 1.8347 2.7772 3.7367 4.7138 5.7086 6.7215 7.7528 1.1000 1.2100 1.3310 1.4641 1.6105 1.7716 1.9487 2.1436 2.3579 2.5937 2.8531 3.1384 3.4523 3.7975 4.1772 4.5950 5.0545 5.5599 6.1159 6.7275 10 11 12 13 14 15 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394 0.2176 0.1978 0.1799 0.1635 0.1486 1.1000 0.5762 0.4021 0.3155 0.2638 0.2296 0.2054 0.1874 0.1736 0.1627 0.1540 0.1468 0.1408 0.1357 0.1315 0.1278 0.1247 0.1219 0.1195 0.1175 0.9091 1.7355 2.4869 3.1699 3.7908 4.3553 4.8684 5.3349 5.7590 6.1446 6.4951 6.8137 7.1034 7.3667 7.6061 7.8237 8.0216 8.2014 8.3649 8.5136 1.0000 0.4762 0.3021 0.2155 0.1638 0.1296 0.1054 0.0874 0.0736 0.0627 0.0540 0.0468 0.0408 0.0357 0.0315 0.0278 0.0247 0.0219 0.0195 0.0175 0.0000 0.4762 0.9366 1.3812 1.8101 2.2236 2.6216 3.0045 3.3724 3.7255 4.0641 1.0000 2.1000 3.3100 4.6410 6.1051 7.7156 9.4672 11.4359 13.5795 15.9374 18.5312 21.3843 24.5227 27.9750 31.7725 35.9497 40.5447 45.5992 51.1591 57.2750 0.0000 0.8264 2.3291 4.3781 6.8618 9.6842 12.7631 16.0287 19.4215 22.8913 26.3963 29.9012 33.3772 36.8005 40.1520 43.4164 46.5819 49.6395 52.5827 55.4069 0.0000 1.0000 3.1000 6.4100 11.0510 17.1561 24.8717 34 3589 45.7948 59.3742 75.3117 93.8428 115.2271 139.7498 167.7248 199.4973 235.4470 275.9917 321,5909 372.7500 0.9091 1.8182 2.7273 3.6364 4.5455 5.4545 6.3636 7.2727 8.1818 9.0909 10.0000 10.9091 11.8182 12.7273 13.6364 14.5455 15.4545 16.3636 17.2727 18.1818 9.8719 10.9605 12.0689 13.1974 14.3465 15.5164 16.7076 17.9205 19.1554 20.4128 21.6930 4.6988 4.9955 5.2789 5.5493 5.8071 6.0526 6.2861 6.5081 16 17 19 20 Sabino Company is considering the purchase of a new heavy-duty industrial waste water pump. Suppliers and experts have been consulted and the choice has been narrowed down to three pump models: Alpha, Beta and Gamma. The key parameters of the three pump models are shown below. Parameters Alpha Beta Gamma 1. Initial Cost 330,000 365,000 ($) 415,000 280,000 at EOY1 360,000 at EOY1 450,000 at EOY1 2. Revenues increasing decreasing increasing ($) annually annually annually thereafter thereafter by thereafter by 2% by 1.0% $10,000 190,000 at EOY1 230,000 at EOY1 3. Operating increasing 312,000 at EOY1 costs increasing annually annually ($) increasing annually thereafter by thereafter by thereafter by $20,000 3% $2,400 4. End-of-life salvage 10,000 -15,000 10,000 value ($) 5. Useful life 5 5 (years) 10 All pump names and parameter values are fictitious. EOY = End-of-year Industry Standard = 3 years MARR = 10% DISCRETE CASH FLOWS AND DISCRETE COMPOUNDING DISCRETE RATE OF INTEREST 1% 0.1000 k%= 0.1200 10.00 % FIP/% PFP (AP,1%) PIA%. (AF/%) FIA/%A/G,1%) P/9,1%) (FIG.1%) PIC.IND PIC.L.K.NO 1 2 3 4 5 6 7 8 9 0.9091 1.8347 2.7772 3.7367 4.7138 5.7086 6.7215 7.7528 1.1000 1.2100 1.3310 1.4641 1.6105 1.7716 1.9487 2.1436 2.3579 2.5937 2.8531 3.1384 3.4523 3.7975 4.1772 4.5950 5.0545 5.5599 6.1159 6.7275 10 11 12 13 14 15 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394 0.2176 0.1978 0.1799 0.1635 0.1486 1.1000 0.5762 0.4021 0.3155 0.2638 0.2296 0.2054 0.1874 0.1736 0.1627 0.1540 0.1468 0.1408 0.1357 0.1315 0.1278 0.1247 0.1219 0.1195 0.1175 0.9091 1.7355 2.4869 3.1699 3.7908 4.3553 4.8684 5.3349 5.7590 6.1446 6.4951 6.8137 7.1034 7.3667 7.6061 7.8237 8.0216 8.2014 8.3649 8.5136 1.0000 0.4762 0.3021 0.2155 0.1638 0.1296 0.1054 0.0874 0.0736 0.0627 0.0540 0.0468 0.0408 0.0357 0.0315 0.0278 0.0247 0.0219 0.0195 0.0175 0.0000 0.4762 0.9366 1.3812 1.8101 2.2236 2.6216 3.0045 3.3724 3.7255 4.0641 1.0000 2.1000 3.3100 4.6410 6.1051 7.7156 9.4672 11.4359 13.5795 15.9374 18.5312 21.3843 24.5227 27.9750 31.7725 35.9497 40.5447 45.5992 51.1591 57.2750 0.0000 0.8264 2.3291 4.3781 6.8618 9.6842 12.7631 16.0287 19.4215 22.8913 26.3963 29.9012 33.3772 36.8005 40.1520 43.4164 46.5819 49.6395 52.5827 55.4069 0.0000 1.0000 3.1000 6.4100 11.0510 17.1561 24.8717 34 3589 45.7948 59.3742 75.3117 93.8428 115.2271 139.7498 167.7248 199.4973 235.4470 275.9917 321,5909 372.7500 0.9091 1.8182 2.7273 3.6364 4.5455 5.4545 6.3636 7.2727 8.1818 9.0909 10.0000 10.9091 11.8182 12.7273 13.6364 14.5455 15.4545 16.3636 17.2727 18.1818 9.8719 10.9605 12.0689 13.1974 14.3465 15.5164 16.7076 17.9205 19.1554 20.4128 21.6930 4.6988 4.9955 5.2789 5.5493 5.8071 6.0526 6.2861 6.5081 16 17 19 20
