(a) Construct a choice table for interest rates from (b) If the minimum attracti
ID: 1105770 • Letter: #
Question
(a) Construct a choice table for interest rates from (b) If the minimum attractive rate of return is 8%, ree mutually exclusive alternatives are being 0% to 100%. which alternative should be selected? 8-16 Th considered. Initial investment $50,000 $22,000 $15,000 Annual net income 5,093 2,077 1,643 Rate of return 8% 7% 9% Each alternative has a 20-year useful life with no salvage value. (a) Construct a choice table for interest rates from 0% to 100%. (b) If the minimum attractive rate of return is 7%, which alternative should be selected?Explanation / Answer
Answer:
Please find the correct answer as follows:
IRR for each project:
Year
A
B
C
0
-50000
-22000
-15000
1
5093
2077
1643
2
5093
2077
1643
3
5093
2077
1643
4
5093
2077
1643
5
5093
2077
1643
6
5093
2077
1643
7
5093
2077
1643
8
5093
2077
1643
9
5093
2077
1643
10
5093
2077
1643
11
5093
2077
1643
12
5093
2077
1643
13
5093
2077
1643
14
5093
2077
1643
15
5093
2077
1643
16
5093
2077
1643
17
5093
2077
1643
18
5093
2077
1643
19
5093
2077
1643
20
5093
2077
1643
IRR
8.0%
7.0%
9.0%
Since the IRR of project C is highest, it must be chosen
-----------
Choice Table
Rate
A
B
C
0%
51860.00
19540.00
17860.00
5%
11550.57
3101.24
4856.22
10%
-8230.20
-4965.66
-1525.07
15%
-19201.80
-9440.04
-5064.51
20%
-25912.34
-12176.70
-7229.33
25%
-30344.77
-13984.31
-8659.23
30%
-33454.50
-15252.50
-9662.43
35%
-35742.72
-16185.67
-10400.61
40%
-37492.08
-16899.09
-10964.95
45%
-38872.20
-17461.92
-11410.18
50%
-39990.64
-17918.04
-11770.98
55%
-40919.32
-18296.76
-12070.57
60%
-41709.30
-18618.93
-12325.42
65%
-42399.94
-18900.58
-12548.22
70%
-43025.71
-19155.78
-12750.10
75%
-43623.07
-19399.39
-12942.80
80%
-44240.19
-19651.06
-13141.89
85%
-44954.55
-19942.39
-13372.33
90%
-45908.66
-20331.49
-13680.13
95%
-47388.18
-20934.85
-14157.41
100%
-49999.96
-21999.96
-14999.96
Year
A
B
C
0
-50000
-22000
-15000
1
5093
2077
1643
2
5093
2077
1643
3
5093
2077
1643
4
5093
2077
1643
5
5093
2077
1643
6
5093
2077
1643
7
5093
2077
1643
8
5093
2077
1643
9
5093
2077
1643
10
5093
2077
1643
11
5093
2077
1643
12
5093
2077
1643
13
5093
2077
1643
14
5093
2077
1643
15
5093
2077
1643
16
5093
2077
1643
17
5093
2077
1643
18
5093
2077
1643
19
5093
2077
1643
20
5093
2077
1643
IRR
8.0%
7.0%
9.0%
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