A firm has seven projects to choose from. Since the firm does not have the capital budget to do all the projects, rank each by IRR. If the firm’s capital budget is $70,000, which projects will be funded? What will the firm’s MARR be?
Project
N (years)
First Cost
Annual Benefits
Salvage Value
1
10
$ 10,000
$ 2,200
$ –
2
40
$ 30,000
$ 4,300
$ 5,000
3
30
$ 25,000
$ 3,600
$ 3,000
4
15
$ 20,000
$ 4,500
$ 5,000
5
20
$ 25,000
$ 4,000
$ –
6
25
$ 15,000
$ 2,800
$ 3,000
7
20
$ 25,000
$ 4,200
$ 10,000
The ABC Company may buy a heat exchanger for $80,000 installed. If their cost of money is 8% and the exchanger has a useful life of 8 years, what must the annual benefit of the exchanger be in order for ABC Company to break even on this purchase?
What is the EAC for a new bridge that has a first cost of $85M, an annual operating cost of $1.5M, a useful life of 45 years, and an interest rate of 8%? Construct a spider plot and tornado diagram of the EAC of the following conditions
First cost ranges between 80% and 140% of base case
Annual operating cost ranges between 80% and 120% of base case
Interest rate ranges between 75% and 125% of base case
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