8-6. Annual expenses for two alternatives have been estimated on different bases as follows: End of Year 1 2 3 4 Alternative A Annual Expenses Estimated in Actual Dollars $120,000 132,000 148,000 160,000 Alternative B Annual Expenses Estimated in Real Dollars with b=0 $100,000 110,000 120,000 130,000 If the average general price inflation rate is expected to be 4% per year and the real rate of interest is 8% per year, show which alternative has the least negative equivalent worth in the base period? (8.2)
8-6. Annual expenses for two alternatives have been estimated on different bases as follows: End of Year 1 2 3 4 Alternative A Annual Expenses Estimated in Actual Dollars $120,000 132,000 148,000 160,000 Alternative B Annual Expenses Estimated in Real Dollars with b=0 $100,000 110,000 120,000 130,000 If the average general price inflation rate is expected to be 4% per year and the real rate of interest is 8% per year, show which alternative has the least negative equivalent worth in the base period? (8.2)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please show equations used. No excel please.

Transcribed Image Text:8-6. Annual expenses for two alternatives have been
estimated on different bases as follows:
End of
Year
1
2
3
4
Alternative A
Annual Expenses
Estimated in
Actual Dollars
$120,000
132,000
148,000
160,000
Alternative B
Annual Expenses
Estimated in Real
Dollars with b=0
$100,000
110,000
120,000
130,000
If the average general price inflation rate is expected
to be 4% per year and the real rate of interest is 8%
per year, show which alternative has the least negative
equivalent worth in the base period? (8.2)
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