can you show the work and how you got this thank you!!!~ A farmer has a choice o

Question

can you show the work and how you got this thank you!!!~

A farmer has a choice of purchasing three tractors. Tractor A costs $20,000, Tractor B costs $22,000 and Tractor C costs $25,000. Each tractor has different benefits, as stated below. If the farmer's Minimum Attractive Rate of Return (MARR) is 10%, which plan should he choose? Do a pre-tax incremental rate-of-return analysis. Benefits of $5,010 per year for 5 years Benefits of $4,000 per year for 4 years plus $16,000 at end of 5 years No benefits for 2 years, then benefits of $13,000 per year for 3 years

Explanation / Answer

tractor A AND B:

incremental cash flows (B-A) = -1010,-1010,-1010,-1010,10990

discounting these we get PV(.1,-1010:10990) = 3,622.36 (use NPV formula)

and diff in costs of B and A = 22000-20000 = 2000

hence incremental analysis shows that B is better then A by (3622.36-2000) = $1,622.36

tractor B and C:

incremental cash flows (C-A) = -4000,-4000,9000,9000,-3000

discounting these we get PV(.1,-4000:-3000) = 4,104.04 (use npv formula)

and diff in costs of Cand B = 25000-22000 = 3000

hence incremental analysis shows that C is better then B by (4104.04 - 3000) = $1,104.04

hence he should choose tractor C

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