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