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Question

. The following three mutually exclusive alternatives are being considered. Each alternative has a 20 year useful life with no salvage value. Using incremental analysis and an MARR of 7% which alternative should be selected?

     A     B     C
Initial investment     $50,000     $22,000     $15,000
Annual net income     5,093     2,077     1,643
Computed rate of return     8%     7%     9%


did not know if i have already posted this question already or not. i do need to see the equation for how its done, thanks!

Submitted: 230 days and 3 hours ago.
Category: Finance
Value: $15
Status: CLOSED
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Posted by Milan Vaishnav 230 days and 3 hours ago.

Answer

Dear Friend,

 

Incremental analysis is used to find the impact of changes in costs or revenues, given a specific potential scenario. Decisions involving incremental analysis include the Make or buy, Sell or process further, Special order and Changes in production and/or technology among many other relevent application.

 

Now, Coming to your Query,

PW of benefits = (UAB)(P/A,7%,20) = UAB (11.470)

Each line length from an Alternative point to the 45-degree line is the NPW of the Alternative. The project with the greatest NPW is thus the one with the longest line dropped from it to the 45-degree line. Therefore, the Alternative "C" should be selected.

 

I hope the above helps,

 

Regards...

Accepted Answer

Dear Friend,

 

I have replied to you as above. Please let me know if it helped. Prompt response shall be appreciated.

 

Regards....

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Expert: Milan Vaishnav
Pos. Feedback: 99.5 %
Accepts: 
Answered: 4/7/2009

Financial Advisor

Technical Analyst in Financial Markets -- Experience of more than 10 years in consulting

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