Two alternatives are being considered:First costUniform annual benefitUseful life, in yearsIf the minimum attractive rate of return is 7%,which alternative should be selected?Solution:2. Terms n= 81. Use the increment analysis, we should useB-Aο ΔΑΞA3. The Increment CFD has 3 basic patterns:ο ΔΡ=ο ΔΕΞ4. AROR= 8.32 %5. Choose B5400 98001750185048Boccurred at end of year 4

Incremental cash flows consist of initial incremental cash outflow, incremental annual benefit and…

Two alternatives are being considered: First cost Uniform annual benefit Useful life, in years A 5400 1750 4 If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 1. Use the increment analysis, we should use B-A B 9800 1850 8

Two alternatives are being considered: First cost Uniform annual benefit Useful life, in years A 5400 1750 4 If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 1. Use the increment analysis, we should use B-A B 9800 1850 8

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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Question

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

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Two alternatives are being considered: B First cost Uniform annual benefit Useful life, in 5000 9600 1750 1850 4 8 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. AROR= % 5. Choose Please answer all parts of the question.
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%
Consider the following four alternatives. Three are do-something and one is Do -Nothing. Alternative A B D Cost $O $50 $30 $40 Net annual benefit Useful life (years) Which is the preferred alternative? If 10% interest rate is selected. Use PW analysis. $O $14 $5 $7 5 10 10
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
Use the future value formula to find the indicated value. FV = 11,000; i 0.04; PMT = $200; n = ? %3= (Round up to the nearest integer as needed.)
2) Data for 2 alternatives are given below, determine the cost of alternative B so that the two alternatives will be equally desirable. Assume an interest rate of 15%. Use benefit cost ratio analysis Alternatives A B Cost P100KX Salvage Value 10k 16k Annual Benefit 28k 30k Life (years) 10 12
Two different alternatives are being compared. Using Net Present Worth Analysis which alternative is best? Use an interest rate of 9%. Alternative Initial Cost A В $ 1,425 $ 2,168 $ 1,325 $ $ Annual Benefit 620 Salvage Value Useful Life (years) 465 $ 897 3 9. A is the best alternative Choose neither alternative Choose either alternative B is the best alternative
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Based on the values in the Table below, identify the present value of benefits for Year 5 if the rate of return is 0.14. Year 1 2 3 4 5 6 7 Benefits 25000 31200 38500 51000 60100 66000 72000 Multiplier 0.87 0.77 0.68 0.59 Present Value of 21750 24024 26180 30090 Benefits A. 52287 В. 31252 C. 24040 D. 30360 B.
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