Question

XYZ, Inc. is considering Investing in one of the following alternatives. The alternatives are mutually exclusive and each has a 10 year useful life. If XYZ, Inc. requires at least 7% return on their investments, which alternative should be selected? (hint: use the incremental analysis method). A B First cent $1.991 $2181 $1255 Annual benefit 325 161 Computed rate of return 101. 10 5 12pt Paragraph ... P O words app honorock com is sharing your screen Stop sharing Hide е 4

Answer 1

Ans: any First compare the two alternatives and select best and compare best alternative with remaining alternative . A B Incremental Investment В- А -1991 -2181 -190 + 325 + 363 38 ROR 10.1% 10.5% X 100 = 802 190-38 190 190 in B By inuesting the additional would make you additional 38, which is equivalent to earning at erate of the B is best alternative present only. 80%. B с Incremental Investment B-c -926 2181 - lass + 363 225 138 926-138 ROR 10.5% 19.3. x 100 = 85% 926 By investing the additional 926 in B would make you additional 138 which is equivalent to earning of 85% : so Overal B is best alternative at rate