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For the data presented below on alternatives A and B and assuming a 10% interest...

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Question

Accounting

For the data presented below on alternatives A and B and assuming a 10% interest rate, determine which alternative should be recommended using the following methods. Alternative A can be bought again at the end of its useful life. (40 points)

A B
First cost $5,300 $10,700
Uniform annual benefit 1,800 2,100
Useful life 4 years 8 years
Salvage value 0 200

On the manual solution,

  • Draw the required cash flow diagrams

And make sure you include the following for ALL methods:

  • What is the decision criteria?
  • Present the required equivalency models.
  • Show ALL calculations to choose the best alternative.
  • What is the best alternative?

Using the payback method:

Using the benefit-cost ratio method:

Using the internal rate of return method:

Answer & Explanation Solved by verified expert
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