Two alternatives are being considered: A B First cost Uniform annual benefit Useful life, in 5000 9600 1750 1850 4 80 years If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 1. Use the increment analysis, we should use 2. Terms n= 3. The Increment CFD has 3 basic patterns: o AP= O AA= O AF= occurred at end of year 4>

Two alternatives are being considered: A B First cost Uniform annual benefit Useful life, in 5000 9600 1750 1850 4 80 years If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 1. Use the increment analysis, we should use 2. Terms n= 3. The Increment CFD has 3 basic patterns: o AP= O AA= O AF= occurred at end of year 4>

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Two alternatives are being considered: First cost Uniform annual benefit Useful life, in years If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 2. Terms n= 8 1. Use the increment analysis, we should use B-A ο ΔΑΞ A 3. The Increment CFD has 3 basic patterns: ο ΔΡ= ο ΔΕΞ 4. AROR= 8.32 % 5. Choose B 5400 9800 1750 1850 4 8 B occurred at end of year 4
1- Find the internal rate using the method of Internal Rate of Return (IRR) if i= 15%, for the table shown below. If the initial cost is (220,000 U) Cost (U) 350 380 400 500 550 470 780 650 690 450 Revenue 0 0 500 1000 770 450 880 660 890 770 (U) 1 2 3 Year 4 5 6 7 8 9 10
Which alternative should be selected using incremental rate of return analysis, if MARR = 12.0%? First cost Annual benefit Life ROR Do-nothing 0 10 yrs A B $6,500 $3,500 1,246 765 с D $7,500 $5,000 1,523 779 14.0% 17.5% 15.5% 9.0% B, because its ROR is the highest something other than C, because C costs the most initially C because C has the highest annual benefit C, because the C-B increment has a ROR of 13.70% and the A-B increment has a ROR of 9.66%
Which alternative should be selected using the incremental rate of return analysis, if MARR =11.0%? Do- nothing A B C D First Cost 0 $10,000 $4000 $10,000 $7000 Annual benefit 0 1,806 828 1,880 1,067 Life 10 Years ROR 12.5% 16.0% 13.5% 8.5% a. B, because its ROR is the highest b. Something other than C, because C costs the most initially c. C, because the C-B increment has a ROR of 11.78% and the A-B increment has a ROR of 10.5% d. C because C has the highest annual benefit
Determine which alternative, if any, should be chosen based on Annual Worth method using 15% MARR. Use Repeatability Method. Note: Show final answer to the nearest WHOLE NUMBER and show complete solution Answer the following: a. The Annual Worth of Alternative A is = $ Blank 1 b. The Annual Worth of Alternative B is = $ Blank 2 c. Choose Alternative (Type only A or B) = Blank 3
The five alternatives shown here are being evaluated by the rate of return method: If the alternatives are independentand the MARR is 17% per year, which alternative(s) should be selected? A D E Initial Investment ($) -25,000 -35,000 -40,000 -60,000 -75,000 i% (ROR versus DN) 9.6% 17.1% 13.4% 27.4% 22.2% O a. A and C O b. O C. All of them O d. B. D, andE Incremental cash flow = cash flowB – cash flowA. where larger initial investment is EN al!
Approximately, what is the value of PG (present worth of arithmetic gradient) if G=100, n=21 years, and i= 20% per year? Soloct no:
Economics Q1) study period is 10 years. MARR=12% A В Capital 11000 16000 13000 18000 investment Annual cost Market value PW (12%) 250 300 400 100 1000 1300 1750 2000 -12090 -17276 ??? -17921 a) PW of alternative C equals b) The rejected alternatives are c) The first comparison in the incremental analysis should be A (?-?) d) Write down the equation of the IRR A (D-B) e) Rank order the alternatives from best to the worst (if any) f) Draw the cash flow diagram for A (C-A)
Consider the following two investment alternatives. Determine the range of investment costs for Alternative B (i.e., min. value < X
Five alternatives are being evaluated by the incremental rate of return method. Incremental Rate of Return, % Initial Alternative Investment, $ versus DN, % A Overall ROR B CDE A 9.6 27.3 9.4 35.3 25.0 -25,000 -35,000 -40,000 -60,000 38.5 24.4 46.5 27.3 B. 15.1 - C 13.4 - D 25.4 6.8 - 75,000 20.2 (SO2PI1) If the projects above are mutually exclusive and the MARR is 20% per year, the best alternative is Select one: O a B ObC OcD OdE
using an excel worksheet, for FV equation, what does it mean the following: =FV(rate, nper,pmt,(pv),(type)) and, how it will show in this formula PV-8453 T=16 years r=8%
Consider the following two investment alternatives. Determine the range of investment costs for Alternative B (i.e., min. value < X < max. value) that will convince an investor to select Alternative B. MARR = 10% per year, and other relevant data are shown in the following table. State clearly any assumptions that are necessary to support your answer.

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