The town of Drygulch has been flooding once per year for the last twenty years. Folks have pretty much accepted the damages it causes.
You have analyzed the flood periodicity and monetary impact to the town and know that with an upgrade to the storm drain system there would be a yearly savings depending on the flow rate (gallons per hour) of a new drainage system. The town expects a 7% MARR on any public works project.
All of the drainage systems below would have twenty years of useful life but the materials used can be recycled at the end of their life, remarkably giving the town back the same amount of funds that were originally needed for whatever system was chosen.
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Flow Rate Options
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Funds Needed
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Yearly Savings
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Incremental IRR
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Challenger-Defender Decision
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Do Nothing
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$0
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$0
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N/A
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N/A
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50,000
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$140,000
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$15,400
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Incremental IRR _____ MARR, therefore ______________ wins
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100,000
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$280,000
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$42,000
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Incremental IRR _____ MARR, therefore ______________ wins
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150,000
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$388,500
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$50,400
|
|
Incremental IRR _____ MARR, therefore ______________ wins
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200,000
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$525,000
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$70,000
|
|
Incremental IRR _____ MARR, therefore ______________ wins
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250,000
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$612,500
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$73,500
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|
Incremental IRR _____ MARR, therefore ______________ wins
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300,000
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$700,000
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$84,000
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|
Incremental IRR _____ MARR, therefore ______________ wins
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In the above table, answer the Challenger-Defender Decision using the format given. <6 pts>
For example, suppose that the 100,000 option wins until the incremental IRR of 250,000 option is calculated. Suppose it is found that the incremental IRR between the 250,000 option and the 100,000 option is 9.27%, then the Challenger-Defender Decision answer in the table for the 250,000 option would look like this:
Incremental IRR __>__ MARR, therefore ___250,000___ wins