You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%) A A B C D E 35,000 45,000 50,000 65,000 80,000 12 15 13 20 18 BCDE 28 20 36 27 12 40 22 42 25 -5

You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%) A A B C D E 35,000 45,000 50,000 65,000 80,000 12 15 13 20 18 BCDE 28 20 36 27 12 40 22 42 25 -5

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two
alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return
figures are rounded to the nearest integers.
Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%)
A
CDE
A
B
C
D
E
b.Select E.
c. Select B.
35,000
45,000
d. Do nothing.
50,000
65,000
80,000
12
15
13
20
18
B
28
20 36 27
12 40 22
If all investment alternatives are mutually exclusive and the MARR is 12%, which alternative should be chosen?
a. Select D.
42 25
-5

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