Bob is considering investing in one of the following investment projects. A B C

Question

Bob is considering investing in one of the following investment projects.

                           A                 B                  C                 D

Initial cost         100               130                 200            330

Annual Income   148               130.78            185            184.55

Annual Cost       123.62            92                 137.52          93

Each alternative has a 5 year useful life.

What is the rate of return for alternative A?

What is the rate of return for alternative B?

What is the rate of return for alternative C?

What is the rate of return for alternative D?

If Bob requires at least an 8% return on his investments,what is the incremental rate of return between the choices left?

Which alternative should he select?

Explanation / Answer

answered:-

Particulars A B C D
Initial Cost (A) 100.00 130.00 200.00 330.00
Annual Income 148.00 130.78 185.00 184.55
Less: Expenses 123.62 92.00 137.52 93.00
Net Income (B) 24.38 38.78 47.48 91.55
Annual Return (B/A) 24.38% 29.83% 23.74% 27.74%


Since B is given higher return, therefore B should be selected

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