Using incremental rate of return,consider the 3 alternatives below and aMinimum Attractive Rate of Return of 7%, which alternative is preferred? Eachhave a useful life of 20 years and noSalvage value.AВCInitial$55,000 $27,000 $20,000InvestmentAnnual$5,600 $2,700 $2,200income8%7.75%9.06%Alt AAlt BAlt C

Internal rate of return is the discount rate at which the present value of inflows equals present…

Answered: Jsing incremental rate of retur onsider…

Jsing incremental rate of retur onsider the 3 alternatives belo Minimum Attractive Rate of Ret 6, which alternative is preferre ave a useful life of 20 years an alvage value.

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

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: Question: There are Two paybacks 1) Payback period X = 6 years and 2) Payback period Y =5 years…

A: Payback PeriodIt indicates the time period under which the initial investment or initial outlay is…

Q: A decision maker has prepared the following payoff table. States of Nature Alternative High 90 Low…

Q: What is the new IIR? Nominal Value: N= |= Emission Date Valuation Date: New Price: What is the new…

A: Certainly, here are short definitions for Internal Rate of Return (IRR), Effective Annual Yield…

Q: None

A: Step 1:1. To calculate the value of a European call option, we can use the Black-Scholes-Merton…

Q: pm.5 Find the expected rate of return using the three estimates provided in the table below for…

A: Given data:Pessimistic First Cost = $1,052Most Likely First Cost = $1,000Optimistic First Cost =…

Q: You are asked to investigate the three investment options shown in the table below for your firm…

A: Firms MIRR= 12% IRR of Project A = 15% IRR of Project B = 7% IRR of Project C = 10% It is evident…

Q: Using incremental benefit-to-cost ratio, compare the following five mutually exclusive alternatives,…

A: Benefit to cost ratio refers to the quantitative measure to evaluate the investment alternatives.…

Q: 6.36 The four alternatives described below question has three parts Part 3: If the proposals are…

A: The answer is as fallows

Q: Evaluate these mutually exclusive alternatives with a horizon of 20 years and a MARR of 15% Use the…

A: The objective of the question is to evaluate two mutually exclusive alternatives, option A and…

Q: Problem 1. Multiple-Choice (82 Q1. If you invest $14,000 now into a project that will yield net…

A: Note: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered…

Q: hree alternatives by the increme following information:

A: To determine which alternative should be chosen for each given MARR (Minimum Acceptable Rate of…

Q: An alternative with an infinite life has a modified B/C ratio of - 100 The alternative has benefits…

A: B/C ratio = 119100 Benefits = $185,000 Annual Maintenance cost = $35,000 Interest Rate = 8% Let the…

Q: What is the delta of a European put option with the following parameters? s0 = $40k = $47 r =…

A: Due to the mathematical complexity of directly calculating the delta for a European put option, we…

Q: What is the approximate expected coefficient of variation (=CV) of returns for a projected one-year…

A: Return 1 = 15%Return 2 = -5%Probability 1 = 50%Probability 2 = 50%

Q: Which of the following projects has the larger Equivalent Annual Net Benefit if the interest rate is…

A: EQUIVALENT ANNUAL NET BENEFIT (EANB) is the amount received each year for the life of project which…

Q: Option 01 has 12 years and option 02 has 8 years of life, and the MARR is 9 percent. Option 02, is…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Q: Compute the value of a real option using the following information: PV(project cash flows) = 51.6,…

A: A real option is a right but it is not the obligation to undertake certain business initiatives,…

Question

Using incremental rate of return,
consider the 3 alternatives below and a
Minimum Attractive Rate of Return of 7
%, which alternative is preferred? Each
have a useful life of 20 years and no
Salvage value.
A
В
C
Initial
$55,000 $27,000 $20,000
Investment
Annual
$5,600 $2,700 $2,200
income
8%
7.75%
9.06%
Alt A
Alt B
Alt C

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Consider the three small mutually exclusive investment alternatives in the table below. The feasible alternative chosen must provide service for a 10-year period. The MARR is 12% per year, and the market value of each is 0 at the end of useful life. State all assumptions (repeatablity/co-terminated at 5 year study period) you make in your analysis. Which alternative should be chosen? A B Capital Investment PhP 2,000 PhP 8,000 PhP 20,000 Use IRR (FW equation) analysis. Annual revenues less expenses 600 2,200 3,600 Useful life (years) 5 5 10 ANSWER: IRRA = 15.24% ; IRRB = 11.65% ; IRRC = Blank 3% ; Choose alternative Blank 4 %3D %3D Do not use comma and any unit of measure. Use two decimal places in the Final answer.
What is the delta of a European put option with the following parameters? s0 = $40k = $46 r = 10%sigma = 20%T = 0.75 years (required precision 0.01 +/- 0.01) Greeks Reference Guide: Delta = ∂π/∂S Theta = ∂π/∂t Gamma = (∂2π)/(∂S2) Vega = ∂π/∂σ Rho = ∂π/∂r
Q1 Compare present value analysis, (minimum attractive rate of return is %8 annualy.) Alternative F Alternative Z First cost, TL Annual earning, TL Maintance cost every 5 year, 400.000 650.000 -same amount- wwww w 90.000 115.000 www m 25.000 30.000 TL Scrap value, TL lifetime, (years) 100.000 1.200.000 50 infinite
A. 6.36 The four alternatives described below are being evaluated. This question has three parts Part 2: If the proposals are mutually exclusive, which one should be selected at a MARR of 14.5% per year? Incremental Rate of Return, %, When Compared with Alternative Overall Initial Alternative Rate of A Investment, $ Return, % -60,000 11.7 -90,000 22.2 43.3 C -140,000 17.9 22.5 10.0 D -190,000 15.8 17.8 10.0 10.0 O B O A O C OD
Alternative A B C which to choose.
Question No. r The following information is provided for five mutually exclusive alternatives that have 20-year useful lives. If the minimum attractive rate of return is 6%, which alternative should be selected using IROR Method? Alternatives B Cost 4,000 2,000 6,000 1,000 9,000 Uniform Annual Benefit 639 410 761 117 785 IROR 15% 20% 11% 10% 6% IROR (B-D) IROR (A-D) IROR (A-B) IROR (C-B) IROR (C-A) IROR (E-C) IROR (E-A) -5% 29% 18% 10% 9% 2% 14%
1
4d) Price the European call having strike 60 GBP. Use the two-periods binomial model with u = 1.1, d = 0.9 and ∆t = 1. Assume that the risk free rate is 5%, and the current price of the underlying asset is 50 GBP.
Consider the following four alternatives. Three are do-something and one is Do -Nothing. Alternative A B D Cost $O $50 $30 $40 Net annual benefit Useful life (years) Which is the preferred alternative? If 10% interest rate is selected. Use PW analysis. $O $14 $5 $7 5 10 10

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS