Three materials with different insulation properties are under consideration. An insulated shipping container supplier is considering expanding its product line. The following information is prepared for economic evaluation of best material. If company's MARR is 4% per
year and study period is five years, use an AW-based incremental rate of return equation to calculate which alternative is preferred. Suppose the salvage value is negligible.
|
Material
|
Q
|
R
|
S
|
|
First costs
|
$46,000
|
$58,000
|
$61,000
|
|
Net annual revenue
|
$10,000 in year
1,
increasing by
$100 per year
thereafter
|
$11,900,
increasing by
$450 per year
thereafter
|
$13,450
|
|
IRR (%)
|
5.93
|
5.15
|
5.14
|
|
Incremental IRR (%)
|
|
|
|
|
Q
|
-
|
|
|
|
R
|
2.5%
|
-
|
|
|
S
|
2.79%
|
5.09%
|
-
|