Three investments are being studied by Bright Star Construction Limited. The table below provides the estimated cash flow for each of the three investments over the next five years. Due to budget constraints, Bright Star can only select one investment out of the three investments. At a MARR (Minimum Acceptable Rate of Return) of 12%, answer the following. Investment ارای ابی 1 2 3 Initial Cost $9,000,000 $5,000,000 $7,000,000 Expenses per Year $3,000,000 $1,500,000 $2,000,000 Return at end of year 5 $38,000,000 $20,000,000 $29,000,000 a) Use a rate of return method to determine the economically best investment for Bright Star. Are you expecting different results if the comparison is based on Annual Worth? (Hint: no calculations are needed). c) What are the case(s) in which a rate of return method is recommended? d) Is it always necessary for the alternative with the highest rate of return to be the best alternative?

Three investments are being studied by Bright Star Construction Limited. The table below provides the estimated cash flow for each of the three investments over the next five years. Due to budget constraints, Bright Star can only select one investment out of the three investments. At a MARR (Minimum Acceptable Rate of Return) of 12%, answer the following. Investment ارای ابی 1 2 3 Initial Cost $9,000,000 $5,000,000 $7,000,000 Expenses per Year $3,000,000 $1,500,000 $2,000,000 Return at end of year 5 $38,000,000 $20,000,000 $29,000,000 a) Use a rate of return method to determine the economically best investment for Bright Star. Are you expecting different results if the comparison is based on Annual Worth? (Hint: no calculations are needed). c) What are the case(s) in which a rate of return method is recommended? d) Is it always necessary for the alternative with the highest rate of return to be the best alternative?

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

Three investments are being studied by Bright Star Construction Limited. The table below provides the
estimated cash flow for each of the three investments over the next five years. Due to budget constraints,
Bright Star can only select one investment out of the three investments. At a MARR (Minimum Acceptable
Rate of Return) of 12%, answer the following.
Investment
1
2
3
a)
b)
Initial Cost
$9,000,000
$5,000,000
$7,000,000
Expenses per Year
$3,000,000
$1,500,000
$2,000,000
Return at end of year 5
$38,000,000
$20,000,000
$29,000,000
Use a rate of return method to determine the economically best investment for Bright Star.
Are you expecting different results if the comparison is based on Annual Worth? (Hint: no calculations
are needed).
c)
What are the case(s) in which a rate of return method is recommended?
d) Is it always necessary for the alternative with the highest rate of return to be the best alternative?

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