Problem 3In comparing three alternatives by the incremental rate of return method, an engineeris provided the following information:Alternative 1(least costly)IRR → 9.17.7Alternative 27.2AIRR8.810.1Alternative 3(most costly)(a) If the MARR is 7%, which alternative should be chosen?(b) If the MARR is 8%, which alternative should be chosen?(c) If the MARR is 9%, which alternative should be chosen?(d) If the MARR is 10%, which alternative should be chosen?8.3

To determine which alternative should be chosen for each given MARR (Minimum Acceptable Rate of…

Answered: hree alternatives by the increme…

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 6P

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Four mutually exclusive alternotives are compared and their internal rate of return (IRR) values are as follows: A = 11.2%; B= 12.3%; C- 13.1%; and D= 128%. Which alternative(s) must be selected it MARR = 11%P O a All aiternatives b. Alternotives Cand D C. None of the alternatives d. Alternative C O e. Insutficient information to decide
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Example 3 Inns oont alafrA Following Example 2, consider a porfolio with three assets S1, S2 and S3 which have expected rates of return 0.1,0.15 and 0.2 respectively, and variance-covariance matrix odni tanoma bszt a aitevi ot botoly 0.1 0.1 -0.1 0.1 0.2 0.1 ololles V = -0.1 0.1 0.6 vo ) isaas sod slais a at gaiteoo ottg ndi oda vodT (aldanoitesup als ot-lais wod ibuadala abnod on a) What is the optimal portfolio when up = worod of sidad = 0.2. adt yhalinie ini ba moe ja SOLUTION lo ano ot b) Use this piece of information and the earlier optimal portfolios from la aao e. Example 2 to find the quadratic equation relating of and up. ni bstni sd SOLUTION tar oad o bo s e) Hence draw a plot of the solutions, and identify the frontier port- Ldon to slar folios. it SOLUTION ods Btvni gatela dt

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