The incremental cash flow between alternatives Z1 and Z2 is shown below (Z2 has
ID: 1178203 • Letter: T
Question
The incremental cash flow between alternatives Z1 and Z2 is shown below (Z2 has the higher initial cost). Use an AW-based rate of return equation to determine the incremental rate of return and which alternative should be selected, if the MARR is 17% per year. Let k = year 1 through 10. Draw Cash Flow Diagram as well.
Incremental
Year
Cash Flow, $(Z2 %u2013 Z1)
0
%u201340,000
1%u201310
9000 %u2013 500k
Incremental
Year
Cash Flow, $(Z2 %u2013 Z1)
0
%u201340,000
1%u201310
9000 %u2013 500k
Explanation / Answer
0 = -40,000(A/P,i,10) + 8500 %u2013 500(A/G,i,10)
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i = 10.5% is < MARR = 17%
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