Answered: Year A B -100 -120 -40 1 +30 -50 2 +10…

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

(engineering economic) Four alternatives with cash flows (million rupiah) as follows: Determine the best alternative based on a 12% MARR using the following methods: (a) Rate of Return; (b) Payback Period

Year
A
B
-100
-120
-40
1
+30
-50
2
+10
+30
+20
3
+15
+30
+20
4
+20
+30
+20
+25
+30
+20
6
+30
+30
+20
7
+35
+30
+20
8
+40
+30
+20
+45
+30
+20

Expert Solution

Step 1

A rate of return (RoR) is the net gain or loss of an investment over a specified time period expressed as a percentage of the initial cost of the investment. When you calculate the rate of return, you are calculating the percentage change from the start of the period to the end. The rate of return of an investment is the loss or gain over a specific time period expressed as a percentage of the initial cost of the investment. The payback period is the amount of time it takes for an investment to reach its breakeven point. People and corporations invest their money primarily to be paid back, which is why the payback period exists

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