Business Decisions Sharon, the owner of the Brentwood Motel, is planning to renovate all the rooms in her motel. There are two plans before her. Plan A calls for an immediate cash outlay of $900,000, whereas plan B calls for an immediate outlay of $600,000. Sharon estimates that adopting plan A would yield an income stream of f(t) = 3,070,000e0.04t dollars/year for the next 5 years, whereas adopting plan B would yield an income stream of g(t)= 3,400,000 dollars/year for the next 5 years. If the prevailing rate of interest is 5%/ year compounded continuously, which plan will yield the higher net income (in dollars) at the end of 5 years? O plan A plan B

Business Decisions Sharon, the owner of the Brentwood Motel, is planning to renovate all the rooms in her motel. There are two plans before her. Plan A calls for an immediate cash outlay of $900,000, whereas plan B calls for an immediate outlay of $600,000. Sharon estimates that adopting plan A would yield an income stream of f(t) = 3,070,000e0.04t dollars/year for the next 5 years, whereas adopting plan B would yield an income stream of g(t)= 3,400,000 dollars/year for the next 5 years. If the prevailing rate of interest is 5%/ year compounded continuously, which plan will yield the higher net income (in dollars) at the end of 5 years? O plan A plan B

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Business Decisions Sharon, the owner of the Brentwood Motel, is planning to renovate all the rooms in her motel. There are two plans before her. Plan A calls for an immediate cash outlay of $900,000, whereas plan B calls
for an immediate outlay of $600,000. Sharon estimates that adopting plan A would yield an income stream of
f(t) = 3,070,000e0.04t
dollars/year for the next 5 years, whereas adopting plan B would yield an income stream of
g(t) = 3,400,000
dollars/year for the next 5 years. If the prevailing rate of interest is 5%/year compounded continuously, which plan will yield the higher net income (in dollars) at the end of 5 years?
plan A
O plan B

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