8-37 which option should be chosen. A firm must decide which of three alternatives to adopt to expand its capacity. The firm wishes a min- imum annual profit of 20% of the initial cost of each separable increment of investment. Any money not invested in capacity expansion can be invested elsewhere for an annual yield of 20% of initial cost. Alt. Initial Cost Annual Profit Profit Rate A $100,000 B 300,000 C 500,000 $30,000 66,000 80,000 30% 22% 16%

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please do 8-37
option C if I die within
yea
to my heirs. My interest rate is 9%. What should I
do?" Ignore the timing of the monthly cash flows
and assume that the payments are received at the end
of year.
Contributed by D. P. Loucks, Cornell University
(a) Develop a choice table for life spans from age
66 to 100.
9%, use an
(b) If remaining life is 20 years and i =
incremental rate of return analysis to recommend
which option should be chosen.
8-37 A firm must decide which of three alternatives to
adopt to expand its capacity. The firm wishes a min-
imum annual profit of 20% of the initial cost of
each separable increment of investment. Any money
not invested in capacity expansion can be invested
elsewhere for an annual yield of 20% of initial
cost.
Alt. Initial Cost Annual Profit Profit Rate
A
B
C
$100,000
300,000
500,000
$30,000
66,000
80,000
30%
22%
16%
Which alternative should be selected? Use a
challenger-defender rate of return analysis.
8-38 The New England Soap Company is considering
adding some processing equipment to the plant to
aid in the removal of impurities from some raw
materials By adding the processing equipment
A
с
8
Transcribed Image Text:option C if I die within yea to my heirs. My interest rate is 9%. What should I do?" Ignore the timing of the monthly cash flows and assume that the payments are received at the end of year. Contributed by D. P. Loucks, Cornell University (a) Develop a choice table for life spans from age 66 to 100. 9%, use an (b) If remaining life is 20 years and i = incremental rate of return analysis to recommend which option should be chosen. 8-37 A firm must decide which of three alternatives to adopt to expand its capacity. The firm wishes a min- imum annual profit of 20% of the initial cost of each separable increment of investment. Any money not invested in capacity expansion can be invested elsewhere for an annual yield of 20% of initial cost. Alt. Initial Cost Annual Profit Profit Rate A B C $100,000 300,000 500,000 $30,000 66,000 80,000 30% 22% 16% Which alternative should be selected? Use a challenger-defender rate of return analysis. 8-38 The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw materials By adding the processing equipment A с 8
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