A company is considering two options (A and B with the same initial cost, as sho

ID: 2751178 • Letter: A

Question

A company is considering two options (A and B with the same initial cost, as shown below). The business department is seeking for justification to choose the best economic alternative. The company's MARR is 12%. Can you help the department to find out the best one between A and B using the incremental analysis? How? fleet management company has three different options for its business needs. Basically, there are three types of equipment assets (A, B, or C) that the company can own, produce revenue through effective operations, and salvage at the end of their useful lives. The equipment assets have different useful lives. as shown in the table below. Assuming "like-replacement" and using the incremental analysis, what is your recommendation to the fleet manager in terms of which option to proceed with among the following three? Why? Assuming each project terminates "without replacement" and using the incremental analysis. what is your recommendation to the fleet manager in terms of which option to proceed with among the following three? Why?

Explanation / Answer

Determination of the best using incremental analysis:

Year

Incremental

Discount factor @12%

Discounted flows

-500

100

-50

0.8928

-44.64

100

-50

0.7971

-39.855

100

0.7117

300

350

0.6355

31.775

300

400

100

0.5674

56.74

4.02

Since, the NPV is positive; incremental analysis can B recommended.

Proposal B has to be considered as it has high cash flows than A.

Determination of the best using differential analysis:

The second question takes more time.Pls post as another question.