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
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Question
When the country’s economy is expanding, AB Investment Company is optimistic and expects a MARR of 15% for new investments. However, in
a receding economy the expected return is 8%. Normally a 10% return is required. An expanding economy causes the estimates of asset life to go
down about 50%, and a receding economy makes the n values increase about 20%. Which plan should be selected if the company president expects the economy to be (a) expanding, and (b) receding?
Transcribed Image Text:Plan M
Plan Q
Initial investment, $
Net cash flow, $/year
-200,000
-240,000
65,000
71,000
Life, years
10
10
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