Two alternatives are being considered: First cost Uniform annual benefit Useful life, in years A 5400 1750 4 If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 1. Use the increment analysis, we should use B-A B 9800 1850 8
Two alternatives are being considered: First cost Uniform annual benefit Useful life, in years A 5400 1750 4 If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 1. Use the increment analysis, we should use B-A B 9800 1850 8
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
![Two alternatives are being considered:
First cost
Uniform annual benefit
Useful life, in years
If the minimum attractive rate of return is 7%,
which alternative should be selected?
Solution:
2. Terms n= 8
1. Use the increment analysis, we should use
B-A
ο ΔΑΞ
A
3. The Increment CFD has 3 basic patterns:
ο ΔΡ=
ο ΔΕΞ
4. AROR= 8.32 %
5. Choose B
5400 9800
1750
1850
4
8
B
occurred at end of year 4](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd00261c3-4893-4528-9e55-1c45ae7110ab%2F6d1a180a-5696-4f23-9177-45e782231852%2Ff4fcki_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Two alternatives are being considered:
First cost
Uniform annual benefit
Useful life, in years
If the minimum attractive rate of return is 7%,
which alternative should be selected?
Solution:
2. Terms n= 8
1. Use the increment analysis, we should use
B-A
ο ΔΑΞ
A
3. The Increment CFD has 3 basic patterns:
ο ΔΡ=
ο ΔΕΞ
4. AROR= 8.32 %
5. Choose B
5400 9800
1750
1850
4
8
B
occurred at end of year 4
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