Answered: By how much would the estimate of…

By how much would the estimate of annual net revenues for Alternative 1 have to vary so that the initial decision based on these data would be reversed?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9EA: If you invest $12,000 today, how much will you have in (for further Instructions on future value in...

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Question

Suppose that the annual revenues of Alternative 2 is known with certainty. By how much would the estimate of annual net revenues for Alternative 1 have to vary so that the initial decision based on these data would be reversed? MARR is 15% per year.

Consider these two alternatives:
Alternative 1
Alternative 2
Capital investment
$7,000
$6,500
Annual net revenues
$1,400
$1,700
Salvage value
$(ID x 150)
$ID x 100)
Useful life
8.
years
10 years

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