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Essentials Of Investments
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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Use Rate of Return Analysis to determine whether Alternative A or B should be chosen. Assume the MARR is 6% per year, compounded annually. Initial Cost Annual Benefit Salvage Value Useful Life (yrs) Alternative A 700 170 0 5 Alternative B 1189 270 0 5 Alternative B should be chosen, because the incremental rate of return of B-A is 0.75%, which is less than the MARR Alternative B should be selected because its rate of return is 4.39%, which is less than the MARR Alternative A should be selected because its rate of return is 6.84%, which is greater than the MARR Alternative A should be chosen, because the incremental rate of return of B-A is 0.75%, which is less than the MARR
Transcribed Image Text:Use Rate of Return Analysis to determine whether Alternative A or B should be chosen. Assume the MARR is 6% per year, compounded annually. Initial Cost Annual Benefit Salvage Value Useful Life (yrs) Alternative A 700 170 0 5 Alternative B 1189 270 0 5 Alternative B should be chosen, because the incremental rate of return of B-A is 0.75%, which is less than the MARR Alternative B should be selected because its rate of return is 4.39%, which is less than the MARR Alternative A should be selected because its rate of return is 6.84%, which is greater than the MARR Alternative A should be chosen, because the incremental rate of return of B-A is 0.75%, which is less than the MARR
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