The following are True/False Questions 1.When an incremental rate of return anal

Question

The following are True/False Questions

1.When an incremental rate of return analysis is conducted, the alternative identified as the best by the annual worth method may not also be identified as the best by the incremental Rate Of Rate analysis

2. The economic service life (ESL) of an asset is detemined by calculating its annual worth over different life periods and selecting the time coinciding with the lowest cost value

3. One thing in common between breakeven evaluation and the ayback period evaluation is that both find a quantity of a parameter that balances a relation based on PW, AW, or ROR equivalence.

4. In after tax Cash Flow analysis, accelerated depreciation methods such as double declining balance depreciation method have a lower PW of tax payments than the straight line method.

5. It will take approximately 4 years to quadruple a $10,000 deposit given that the interest rate is 36%

6. In solving for an unknown interest rate involoving only the F/P formula, it is possible to solve for i directly by rearreaging the equation

7. In service sector projects and cost efeectiveness analysis, domincance occurs when the incremental analysis indicates that the challenger alternative offers an improved CER measure compared to the defender's CER

8. Inflated dollars can be converted to constant-value dollars by dividing by one plus the inflation rate for each year

Please provide a brief reasoning for each answer, Thank you

Explanation / Answer

A1)

True.

Since it is the option with the best present worth and not best annual worth

2)

True:

Economic Service Life. Definition: Economic service life is the remaining useful life of an asset that results in the minimum annual equivalent cost

3) True:

As per the methods.

4) True.

Accelerated depreciation gives more depreciation initially as compared to straight line, hence postponing the taxes and thereby decreaing the Present worth of taxes paid.

5) False

It wil take log1.364 = 4.5085 years

6) True

7) True

(delta C/E)challenger < (C/E)defender)

8) True

Inflated dollars = Constant value dollars * (1+inflation rate)^(no. of years)

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