Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (AROR) analysis. MARR =10%. A D First cost $15,000 $36,000 $21,200 |45,000 O &M Cost/ year |1,600 400 900 |1,000 Benefit/year 8,000 13,000 9,000 15,000 Salvage value 3,000 |6,000 4,600 |10,000 Life in years 4 O Alt. A Alt. B O Alt. C O Alt. D

Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (AROR) analysis. MARR =10%. A D First cost $15,000 $36,000 $21,200 |45,000 O &M Cost/ year |1,600 400 900 |1,000 Benefit/year 8,000 13,000 9,000 15,000 Salvage value 3,000 |6,000 4,600 |10,000 Life in years 4 O Alt. A Alt. B O Alt. C O Alt. D

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (AROR) analysis. MARR = 10%. A B C D $15,000 $21,200 $36,000 45,000 1,600 700 400 1,000 First cost O &M Cost/ year Benefit/year 8,000 9,000 13,000 Salvage value 3,000 4,600 6,000 Life in years 4 15,000 10,000
The five alternatives shown below are being evaluated by the rate of return method. Incremental ROR when compared with alternative B C D 27.3 9.4 35.3 25 E 1.5 38.5 24.4 Alt B D E Initial Invest, $ ROR vs DN,% 9.6 15.1 -25,000 -35,000 -40,000 -60,000 -75,000 13.4 25.4 20.2 A --- --- (d) Alt D 46.5 27.3 6.8 ... If the projects are mutually exclusive and the Minimum Attractive Rate of Return is 9.2% per year, the best alternative is: (a) Alt A (b) Alt B (c) Alt C (e) Alt E
Which alternative should be selected using the incremental rate of return analysis, if MARR =11.0%? Do- nothing A B C D First Cost 0 $10,000 $4000 $10,000 $7000 Annual benefit 0 1,806 828 1,880 1,067 Life 10 Years ROR 12.5% 16.0% 13.5% 8.5% a. B, because its ROR is the highest b. Something other than C, because C costs the most initially c. C, because the C-B increment has a ROR of 11.78% and the A-B increment has a ROR of 10.5% d. C because C has the highest annual benefit
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Consider three mutually exclusive alternatives. The MARR is 10%. x Y z |- $125 - $60 - $65 20 15 Year 10 1 40 15 2 40 20 3 40 15 20 4 40 15 20 (a) For Alt. X, compute the benefit-cost ratio. (b) Based on the payback period, which alternative should be selected? (c) Determine the preferred altemative based on an exact economic analysis method.