Answer to Question #208971 in Economics for Smarika Kafle

Question

Consider four mutually exclusive alternatives, each having an 8-year

useful life: If the minimum attractive rate of return is 8%, which

alternative should be selected (use IRR incremental)?

A B C D

First cost $1500 $100 $900 $500

Annual Benefit $122 $120 $97 $122

Salvage value $750 $500 $500

Answer 1

For A:

$(1500-750)\times(1+0.08)^8+8\times122=2364$

B:

$(100-500)\times(1+0.08)^8+8\times120=220$

C:

$(900-500)\times(1+0.08)^8+8\times97=1516$

D:

$(500-0)\times(1+0.08)^8+8\times122=1901$

Answer: A