Explain how Annual worth, Present worth and Internal Rate of Return (IRR) are used in capital investment decisions

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Practice Problems

Q.2. Explain how Annual worth, Present worth and Internal Rate of Return (IRR) are used in capital investment decisions.

A manufacturing process can be designed for varying degrees of automation/ alternative processes/ alternative machines. The following is relevant cost information table for 4 alternatives:

Organisation has a contract to supply 5000 units per year with a contract sale price of $P for each item. Determine which is the best option after-tax analyses using a tax rate of 30% and a minimum attractive after-tax rate of return of 10% and straight-line depreciation. Assume each alternative has a life of 6 years and 5% of original price as salvage value after end of the life. Use each of the following methods for scenario and relevant costs applicable to your workplace:

(a) Annual worth.

(b) Present worth.

(c) Internal Rate of Return (IRR).

Use excel and attach file as embedded file in word document/ upload file in Moodle for your analysis.

Hint

Management Internal Rate of return is the rate of return at which the NPV of the project is zero, this implies it will use IRR as the discount rate we will get NPV as zero, thus IRR signifies the effective annual returns earned by the firm on the project an annual basis for the period of years....

Select Deadline for Completion

4 Days

3 Days

2 Days

1 Day

1 to 15 Hours

Date & Time

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