The cash flows for four different alternatives are given in table below. If MARR

Question

1. The cash flows for four different alternatives are given in table below. If MARR 10%, which is the best alternative?
   Data Alt. A Alt. B Alt. C Alt. D (Do Nothing) Initial Cost , $ 5,000 9,000 7,500 0 Net benefits/ Year , $ 1457 2,518 2,133 0 ROR 14% 13% 12.4% 0 Life, Years 5 5 5 0 A. Alt. A B. Alt. B C. Alt. C D. Alt. D

The cash flows for four different alternatives are given in table below. If MARR 10%, which is the best alternative?
Data Alt. A Alt. B Alt. C Alt. D (Do Nothing) Initial Cost , $ 5,000 9,000 7,500 0 Net benefits/ Year , $ 1457 2,518 2,133 0 ROR 14% 13% 12.4% 0 Life, Years 5 5 5 0 A. Alt. A B. Alt. B C. Alt. C D. Alt. D The cash flows for four different alternatives are given in table below. If MARR 10%, which is the best alternative?
Data Alt. A Alt. B Alt. C Alt. D (Do Nothing) Initial Cost , $ 5,000 9,000 7,500 0 Net benefits/ Year , $ 1457 2,518 2,133 0 ROR 14% 13% 12.4% 0 Life, Years 5 5 5 0 Alt. D (Do Nothing) Alt. A Alt. B Alt. C Alt. D Data Alt. A Alt. B Alt. C Alt. D (Do Nothing) Initial Cost , $ 5,000 9,000 7,500 0 Net benefits/ Year , $ 1457 2,518 2,133 0 ROR 14% 13% 12.4% 0 Life, Years 5 5 5 0

Explanation / Answer

(Alt. A - Alt. D) Increment
5,000(A/P, i, 5) = 1,457 (A/P, i, 5) = 1,457/5,000 = 0.2914
From interest tables, ?RoR is found to be greater than 10% (MARR). Keep Alt. A
(Alt .C - Alt. A) Increment
(7,500 - 5,000)(A/P, i, 5) = (2,133 - 1,457) (A/P, i, 5) = 676/2,500 = 0.2704
From interest tables, ?RoR is found to be greater than 10% (MARR). Keep Alt. C
(Alt .B- Alt. C) Increment
(9,000 - 7,500)(A/P, i, 5) = (2,518 - 2,133) (A/P, i, 5) = 385/1,500 = 0.2567
From interest tables, ?RoR is found to be less than 10% (MARR). Choose Alt. C
The answer is

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