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Based on benefit-cost ratio, which of the following investment alternatives is the most attractive at an interest rate of 9%

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Answer #1

Benefit cost analysis is ratio of benifts to cost The formula can be Benefit cost analysis Benefit Cost

Since the useful life is more than a year, we need to find out Present value of future cashflows The interest rate is 9% Let

Now we will calculate for each option Cotton PV of cost= Benifit/Disc factor Year Benefit 750 40 40 40 PV of cost= Disc facto

Polyster PV of cost Benifit/Disc factor Year Benefit 1500 80 80 31 80 PV of cost Disc factor Cost/Disc factor 1.00 1,500.00 4

Wool Year | LE= ৩ ০ ০ = ৮ + - es PV of cost PV of coste Benefit Disc factor Cost/Disc factor Benifit/Disc factor 3000 | 1.00

Spandex PV of cost= Benifit/Disc factor Year Cost ol 21 3 41 Benefit 5000 1601 160 160 160 160 1601 1601 160 160 160 160 160

In short, we will compare the ratios of all the options Ratio Option Cotton Polyster Wool Spandex 1.01 1.06 1.07 1.06 Since o

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