Please do 8-2 ### Decision Making with Financial Alternatives#### Two Action Alternatives**Problem 8-1:** *Including a do-nothing alternative, construct a choice table for interest rates from 0% to 100%.*| Year | X | Y ||------|-------|-------|| 0 | -$1200| -$2500|| 1 | 1750 | 3250 |#### Three Action Alternatives**Problem 8-2:** *Construct a choice table for interest rates from 0% to 100% for two mutually exclusive alternatives and the do-nothing alternative.*| Year | Buy Y | Buy X ||------|-------|-------|| 0 | -$185 | -$100.0 || 1-4 | 62 | 36 |**Problem 8-3:** *Consider three alternatives A, B, and “do-nothing.”* **(a)** *Construct a choice table for interest rates from 0% to 100%.*| Year | A | B ||------|--------|--------|| 0 | -$10,000 | -$15,000 || 1-5 | 3,200 | 4,500 |Here, each choice table outlines the financial outcomes of different investment options (X, Y, A, B) over specified years with the initial losses followed by subsequent annual gains. These tables are essential for understanding and comparing the financial implications over time under various interest rate conditions.

Due to resource constraints, the investor is only able to choose one project. The incremental analysis is a crucial method for helping investors select an interest rate from a variety of options. By using the IRR approach, the incorrect project could be chosen because IRR is impacted by variations in investment size. It is recommended to construct the decision table using the NPV technique.Solution:- 8-2) The internal rate of return is a technique for expressing a project's value in percentages as opposed to money. The discount rate known as IRR makes NPV to zero. According to the internal rate of return rule, a project or investment should be undertaken if its IRR is higher than the hurdle rate, which is the required minimum rate of return. Using Excel to create a choice table for two mutually exclusive alternatives: Formula used:- Explanation- Step 1: The IRR for Buy Y and Buy X has been determined. Step 2: At interest rates ranging from 0% to 55%, NPV is calculated. Step 3: A graph is created to locate the interest rate's intersecting line. Step 4: Incremental cash flows for the mutually exclusive options are determined. Step 5: The IRR for incremental cash flow is determined. Step 5: Building the decision table based on the IRR of the incremental cash flow.

Answered: 8-2 A Construct a choice table for…

Business

Economics

8-2 A Construct a choice table for interest rates from 0% to 100% for two mutually exclusive alternatives and the do-nothing alternative. Year 0 1-4 Buy Y -$185 62 Buy X -$100.0 36

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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