A business is considering two investment alternatives, both of which can be repe
ID: 2622888 • Letter: A
Question
A business is considering two investment alternatives, both of which can be repeated with identical costs and benefits. The MARR used is 12% per year.
Investment Alternative
A
B
First Cost
$10,700
$5,500
Uniform Annual Benefits
$2,100
$1,800
Salvage Value
$1,000
$500
Useful Life, Years
8
4
Determine the best alternative using the incremental approach and the total cash flow approach.
Neither A nor B can be selected
Alt. A
Either will do
Alt. B
Investment Alternative
A
B
First Cost
$10,700
$5,500
Uniform Annual Benefits
$2,100
$1,800
Salvage Value
$1,000
$500
Useful Life, Years
8
4
Explanation / Answer
The best alternative using the incremental approach :-
Incremental first cost = 10700 - [5500 + 5500/(1.12^4)]
= 10700
The best alternative using the incremental approach :-
Incremental first cost = 10700 - [5500 + 5500/(1.12^4)]
= 10700
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