Alt. A Alt. B Alt. C Initial cost $5,000 9,000 7,500 Annual benefits $1,457 2,51
ID: 1091341 • Letter: A
Question
Alt. A
Alt. B
Alt. C
Initial cost
$5,000
9,000
7,500
Annual benefits
$1,457
2,518
2,133
RoR
14%
13%
12.4%
Life in years
5
Select the most appropriate answer from the choices below. No partial credit. Show all work, no credit if work not shown (not a guessing game).
A. Alternative A is best choice
B. Alternative B is best choice
C. Alternative C is best choice
D. None of the above,
Alt. A
Alt. B
Alt. C
Initial cost
$5,000
9,000
7,500
Annual benefits
$1,457
2,518
2,133
RoR
14%
13%
12.4%
Life in years
5
Explanation / Answer
MAIN ANSWER:
On the basis of Incremental analysis of RoR, Alternative A should be selected because of highest Rate of return.
Therefore, Alternative A is best choice (Answer A)
.
ANSWER USING NPV ANALYSIS
If NPV criteria is used, the working will be follows:
NPV of Alt. A = (Annual Benefits x Annuity P.V. factor)
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