Answer to Question #167527 in Economics for Simran

Question

Ques 8-19 - Andrews Manufacturing offers three models for one of its products to its customers. You have been asked to analyze the choices from the customer’s perspective. Which model should a customer choose if each model has a life of 12 years? Doing nothing is an alternative.

Alternative

Deluxe

Regular

Economy

First cost

$220,000

$125,000

$75,000

Annual benefit

79,000

43,000

28,000

Maintenance and operating costs

38,000

13,000

8,000

Salvage value

16,000

6,900

3,000

 

(b)MARR = 15%. Using incremental rate of return analysis, which alternative, if any, should the customer choose

Answer 1

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