Question

2. (4 marks) A new manufacturing device costs $10,000 to buy, but produces annual benefits of $3250 in reduced production costs. The device will operate for 4 years, at which time it will have no resale value. What is the internal rate of return on this investment? 3. (2 marks) What type of choice (independent, mutually exclusive, or related) are each of these engineering decisions? A. A machine wears out, it needs to be replaced and they have three different new machines to choose from B. Canada is replacing its fleet of Sea King helicopters, and has budgeted $12 Billion; it will select one of three bids c. We only have $12 Billion, and can only buy so many helicopters. The total # of helicopters bought in 2) above depends on choosing from 1 or more of 3 different technology packages offered by each bidder D. ICBC invests in all road safety improvement projects that meet a PBP < 2 years E. Fortis BC will buy power from any and all private run-of-river power plants at 10.5 cents per kwh over 20 years

Answer 1

Solution :-

Cashflow at year 0 = Initial Investment = -$10,000

Cash Inflow then From year 1 to 4 as cost reduction benefits = $3,250

Now IRR = 11.39%

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