uestion # 4 (15 points) Three mutually exclusive revenue alternatives that have
ID: 1145116 • Letter: U
Question
uestion # 4 (15 points) Three mutually exclusive revenue alternatives that have infinite lives are under consideration for increasing productivity of a waste disposal company in Doha. The initial costs and cash flows ofeach alternative are shown. Assuming the MARR is 14.5% per year, answer the following questions. Initial Cost ($) Annual Cash flow (S per year) Rate of Return (%) -7,000 1,000 -9,000 1,400 15.6% 3,000 500 16.7% 1) Calculate the Rate of Return of Alternative A. 2) Using the Incremental ROR Analysis, which alternative should be selected? "Do- othing" is not an option)Explanation / Answer
1) Rate of Return of alternative A = 1000/7000*100
= 14.3 %
2) Eliminate the do-nothing alternative if at least one other alternative has a ROR greater than or equal to the MARR.Eliminate any alternative that has a ROR < MARR. Eliminate any alternative that is dominated by another. Since no one clearly dominates the other, but there is at least one alternative that is greater than MARR, eliminate do-nothing.There are no pairs where one part is clearly dominated by the other.
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