Calculate the incremental

Explanation of Solution
Table-1 shows the cash flow.
Table -1
Alternate | V | D |
First cost (C) | -250,000 | -225,000 |
Annual cost (O)per year | -231,000 | -235,000 |
Overhaul cost (O3) year 3 | 0 | -26,000 |
Overhaul cost (O4) year 4 | -39,000 | 0 |
Salvage value (SV) | 50,000 | 10,000 |
Life (n) | 6 | 6 |
MARR is 15%.
Incremental rate of return can be calculated as follows:
Substitute the incremental rate of return as 17% by trial-and-error method in the above equation.
The calculated value is greater than the present value factor. Thus, increase the incremental rate of return to 17.43%.
The calculated value is nearly equal to the incremental present value factor. Thus, it is confirmed that the incremental rate of return is 17.43%.
The incremental rate of return from alternative V and alternative D is greater than MARR. Thus, the firm should select the new alternative V.
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Chapter 8 Solutions
ENGR.ECONOMY CUSTOM FOR TAMU ISEN 667
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