Economics Question

timer Asked: Nov 9th, 2016

Question description

I ONLY NEED TO calculate the change in present worth and the change in IRR to compare.

In the Rawhide Company (a leather products manufacturer), decisions regarding approval of proposals for capital investment are based upon a stipulated MARR of 18% per year. The five packaging devices listed in the table below were compared assuming a 10 year useful life and zero market value for each at that time. Which one (if any) should be selected? Use the IRR and PW method.

Packaging Equipment






Capital Investment






Annual revenue less expenses






Rate of return (IRR)






I got this answer:

Capital Investment (a)$38,000$50,000$55,000$60,000$70,000
Annual revenue less expenses (b)$11,000$14,100$16,300$16,800$19,200
Present Value Annuity Factor @ 18% for 10 years (c )4.49414.49414.49414.49414.4941
Present Value of (b) @ MARR (d = b*c)$49,434.95$63,366.62$73,253.61$75,500.65$86,286.46
Present Worth (e = d - a)$11,434.95$13,366.62$18,253.61$15,500.65$16,286.46
Rate of return (IRR)26.10%25.30%26.90%25.00%24.30%
Based on IRR method and Present Worth method Project C should be seleted as it gives highest IRR and maximum present worth

But I still need to calculate the change in present worth and the change in IRR to compare.

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