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
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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
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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