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You must select between two options that have a MARR of 12%. Option Red has an...

You must select between two options that have a MARR of 12%. Option Red has an initial cost of $50,000 and annual benefits of $13,000 for the next six years. Option Blue has an initial cost of $70,000 and annual benefits of $15,250 for the next eight years. State here on Blackboard what option should be selected using an incremental ROR analysis. You must also state here on Blackboard the increment rate of return (in percent to 2 decimal places like 9.38%) you used to make the selection.

Solutions

Expert Solution

Incremental ROR = 14.19%

This is greater than the MARR of 12%, hence Option Blue should be selected.

Year Option Red Option Blue Incremental CF
0 -50000 -70000 -20000
1 13000 15250 2250
2 13000 15250 2250
3 13000 15250 2250
4 13000 15250 2250
5 13000 15250 2250
6 13000 15250 2250
7 15250 15250
8 15250 15250

Workings

jeff jeffy answered 4 months ago
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