# Financial table we’re supposed to use is gievn at the bottom, you dont need to answer 16,19 B. Problems and Questions (White) The Simple Diner Company is analyzing the purchase

Financial table we’re supposed to use is gievn at the bottom, you dont need to answer 16,19 B. Problems and Questions (White)

The Simple Diner Company is analyzing the purchase of a diner in the

west end of the city.

The key parameters of three diners under scrutiny are provided below.

Parameters

Alpha

Beta

Gamma

1. Initial Cost ($)

$425,000

550,000

620,000

$290,000 at

EOY1

$275,000

increasing

$250,000 at EOY1

annually from

annually by 2%

2. Revenues ($)

decreasing

EOY1 to EOY5;

to EOY5;

annually

$280,000

$315,000 at

thereafter by 2%

annually from

EOY6

EOY6 to EOY10

decreasing

annually by 2%

to EOY10

$177,000 at

EOY1

$114,000 at EOY1

increasing

3. Operating

decreasing

$165,000 at

annually by

EOY1 increasing

$1,000 to EOY5;

Costs

annually

annually

$183,000 at

($)

thereafter by

$1,000

thereafter by 1%

EOY6

increasing

annually by 3%

to EOY10

4. End-of-life

salvage value

$-5,000

10,000

($)

5,000

5. Useful life

(years)

5 years

10 years

10 years

All parameter values are fictitious.

.

EOY = End-of-year

Industry Standard = 4 years

MARR = 10%

1.

Alpha’s Net Future Worth (NFW) at EOY5.

2.

Gamma’s Net Present Worth (NPW) at EOYO.

3.

Alpha’s NPW at EOYO. 4.

Beta’s Annual Equivalent Worth (AEW).

5.

Gamma’s AEW over 20 years (it was repeated).

6.

The best of the three (3) diners based on the NFW decision criterion.

7.

The best of the three (3) diners based on the AEW decision criterion.

8.

Beta’s project balance after 2 years based on the simple payback decision

criterion.

9.

Gamma’s project balance after 3 years based on the simple payback

decision criterion.

10.

Gamma’s recovery period (years) based on the discounted payback

decision criterion.

11.

Beta’s project balance after 2 years based on the discounted payback

decision criterion.

12. Alpha’s opportunity cost in the second year based on the simple payback

decision criterion.

13.

The best of the three diners based on the simple payback decision

criterion.

14.

The best of the three diners based on the discounted payback decision

criterion.

15.

Alpha’s benefit/cost (B/C) ratio.

16. Gamma’s (B/C ratio.

17.

Two-part question:

i) Based on the incremental B/C decision criterion, is the Alpha diner

better than the Beta diner?

ii) Does your answer to part i) of this question coincide with your

conclusion as to the better of the Alpha and Beta diners based on the

NEW decision criterion?

Answer options are a) Yes, Yes; b) Yes, No; c) No, Yes; d) No, No.

18.

Two-part question:

i) Based on the incremental B/C decision criterion, is the Beta diner better

than the Gamma diner?

i) Does your answer to part i) of this question coincide with your

conclusion as to the better of the Beta and Gamma diners based on the AEW decision criterion?

Answer options are a) Yes, Yes; b) Yes, No; c) No, Yes; d) No, No.

19.

The best of the three diners based on the B/C ratio.

20.

Alpha’s Internal Rate of Retum (IRR).

21.

The incremental Internal Rate of Return (AIRR) between the Alpha and

Beta diners (based on Excel’s IRR function or equivalent)

22.

The incremental Intemal Rate of Retum (AIRR) between the Alpha and

Gamma diners (based on Excel’s IRR function or equivalent).

23.

Alpha’s External Rate of Return (ERR).

24.

Beta’s ERR.

25.

Two-part question:

i) Based on the incremental ERR decision criterion (based on Excel’s

MIRR function), is the Alpha diner better than the Beta diner?

ii) Does your answer to part i) of this question coincide with your

conclusion as to the better of the Alpha and Beta diners based on the

NPW decision criterion?

Answer options are a) Yes, Yes; b) Yes, No; c) No, Yes; d) No, No.

26.

If the company’s restaurant capital budget was $1.2 million which diner(s)

should it purchase assuming that diners are independent investments?

27.

If the company decided to purchase two diners harvesters instead of one

in 2021 (that is, one in February and the other in July), which of the

harvesters in Question 28 should it purchase in February 2021?

28.

Wilber plans to make six (6) consecutive monthly deposits of $800

beginning on March 31, 2021 to a savings account that pays interest of

12% compounded quarterly.

Which of the following answer options would give the equivalent value

(worth) of his monthly deposits in 2021 on January 1, 2024?

a) NPW=800(P/A,3%,8)(P/F,3%,3)

b) NPW=800(P/A, 12%,8)(P/F,12%,2)

c) NPW=800(P/A,i*%,8)(P/F,i*%,2) [see note below]

d) None of these answers is correct.

[*%=compounded monthly rate equivalent to a rate of 12% compounded

quarterly]

## Leave a Reply

Want to join the discussion?Feel free to contribute!