#6. The net cash flows are shown below for three alternatives for water resources development projects. The MARR is 12% per year and the study period is 10 years. Which alternative is economically preferred based on the external rate of return method? (External rate of return = MARR = 12% per year.) End of Year Project A ($) Project B ($) Project C ($) 0 171,200 126,400 143,600 1 14,800 24,200 20,000 ? ? ? ? ? ? ? ? ? ? ? ? 10 14,800 24,200 20,00

Three projects are being evaluated by a national financial corporation. The table below summarizes expected cash flows for each of the three projects over the next seven years. Due to budget limitations, the corporation will only choose one project out of the three projects. At a MARR (Minimum Acceptable Rate of Return) of 8%, answer the following.

a) Determine the economically best project for the corporation using a rate of return method.

b) Is it always the case for the project with the highest rate of return to be the economically best alternative?

c) Are you expecting different results if the comparison is based on Present Worth? ( Hint: no calculations are needed).

6) The AW values of three alternatives are $-50,000 for A, $-35,000 for B, and $-48,000 for C. On the basis of these AW values, the correct decision is to:

a. Select alternative A

b. Select alternative B

c. Select alternative C

d. Select the do-nothing alternative

7) A grateful donor wishes to start an endowment at her alma mater that will provide scholarship money of $40,000 per year beginning now (time 0) and continue indefinitely. If the funds earn 10% per year, the amount that she must donate now is:

a. $340,000

b. $400,000

c. $493,000

d. $440,000

8) Given that i = 10% and the data below: Alternative Project A Project B First Cost($) -50,000 -80,000 Annual Cost ($/yr) -20,000 -10,000 Salvage value ($) 10,000 25,000 Life, years 3 6 The cost recovery for project A and B are respectively;

a. CR=$25,128 for project A and CR=$37,084 for project B

b. CR=$15,128 for project A and CR=$17,084 for project B

c. CR=$17,084 for project A and CR=$15,129 for project B

d. CR=$43,126 for project A and CR=$31,600 for project B Questions

9-11. The four cost€ alternatives described below are being evaluated.

9) If the proposals are independents, which one(s) should be selected with MARR =18%?

a. Alternative A, B, C, and D

b. Alternative B, C, and D

c. Only Alternative B

d. Only Alternative B and C

10) If the proposals are mutually exclusive, which should be selected with MARR=15%?

a. Alternative A, B, C, and D

b. Only alternative B

c. Alternative B and C

d. Only alternative C

11) If the proposals are mutually exclusive, which should be selected with MARR=10%?

a. Select alternative D

b. Select alternative C

c. Select alternative B

d. Select all alternatives A, B, C, and D

Discuss the pros and cons of creating a "development fund" into which revenues are put from the sale of natural resource commodities, with the proceeds to be used for development projects. what are the alternatives to such a fund?