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Plan M Plan Q Initial investment, $ Net cash flow, $/year -200,000 -240,000 65,000 71,000 Life, years 10 10

Plan M Plan Q Initial investment, $ Net cash flow, $/year -200,000 -240,000 65,000 71,000 Life, years 10 10

Essentials Of Investments
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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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?

Plan M Plan Q Initial investment, $ Net cash flow, $/year -200,000 -240,000 65,000 71,000 Life, years 10 10
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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