Two mutually exclusive alternatives are being considered.

Alternative A has an initial cost of $100 and uniform annual benefit of $19.93. The useful life is 10 years, and the IRR is 15%
Alternative B has an initial cost of $50 and uniform annual benefit of $11.93. The useful life is 10 years, and the IRR is 20% The MARR is 8%.

Which of the following equation(s) will solve for the IRR that allows you to make a correct decision based on Rate of Return Analysis?

A) PW = - 50 - 8(P/A, i, 10)B) PW = - 50 + 8(P/A, i, 10)C)PW(A) = 100 - 19.93(P/A, i, 10)PW(B) = 50 - 11.93(P/A, i, 10)D)PW(A) = 100 - 19.93(P/A, 8%, 10)PW(B) = 50 - 11.93(P/A, 8%, 10)

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ogbe2k3 ogbe2k3 · Answer 1 · 2020-05-05T11:59:40+02:00

Answer:

The correct answer is option B PW = - $50 + 8 (P/A, 0.08, 10)

Explanation:

Recall that

The initial cost for Alternative A is $100 and a uniform annual benefit of $19.93

The initial cost for Alternative B is $50 and a uniform annual benefit of $11.93

The two alternatives has a useful life of 10 years

Now, we will show the rate return analysis given below

Alternative -A Alternative -B A-B

The First cost $100 $50 $50

The annual benefit $19.93 $11.93 $8.93

The Expected life 10 years 10 years 10 years

Thus the increment rate will be computed as,

PW = -P + A (P/A, i, n) ...This is the equation (1)

now,

P = is the first cost

n= The rime period

A= Annual benefit

I = the interest rate

Thus,

We substitute this values into the equation 1 stated

Which is,

PW = - $50 + 8 (P/A, 0.08, 10)

Therefore PW = - $50 + 8 (P/A, 0.08, 10) this will solve for the IRR correction based on Rate of Return Analysis.