Consider alternatives A and B as shown below. The interest rate is 9%. For parts a) and b), let X = $250. For parts a) and b), which alternative is preferred: a) by equivalent annual worth analysis? b) by payback period? c) Compute the value of X that makes the two alternatives equally desirable. Initial cost Uniform annual benefit Salvage value Useful life, in years A $500 200 100 5 B $900 X 120 5

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
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Consider alternatives A and B as shown below. The interest rate is 9%. For parts a) and b), let X
= $250. For parts a) and b), which alternative is preferred:
a) by equivalent annual worth analysis?
b) by payback period?
c) Compute the value of X that makes the two alternatives equally desirable.
Initial cost
Uniform annual benefit
Salvage value
Useful life, in years
A
$500
200
100
5
B
$900
X
120
5
Transcribed Image Text:Consider alternatives A and B as shown below. The interest rate is 9%. For parts a) and b), let X = $250. For parts a) and b), which alternative is preferred: a) by equivalent annual worth analysis? b) by payback period? c) Compute the value of X that makes the two alternatives equally desirable. Initial cost Uniform annual benefit Salvage value Useful life, in years A $500 200 100 5 B $900 X 120 5
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