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Sagot :
Answer:
Choose Alternative : A2
Explanation:
MARR = 8%
Alternatives : A1 and A2
Year A1 A2
First cost 0 $120,000 $130,000
Annual savings 1 to infinity $11,000 $14,500
determine what course of action to recommend
Incremental rate of return for infinite project ( r ) i.e. from A2 - A1
Apply this formula below to resolve the question
-first cost of more expensive alternative - (-first cost of less expensive alternative) + savings of more expensive/r - savings of less expensive/r = 0
= - 130,000 - ( - 120,000 ) + 14500 / r - 11,000 / r = 0
= -130,000 + 120,000 = 11,000 / r - 14,500 / r
= - 10,000 = - 3500 / r
∴ r = 3500 / 10000 = 0.35 = 35%
The incremental rate of return from A2 - A1 = 35% which is > MARR ( 8%)
hence choose alternative A2
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