In: Accounting
An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment at its manufacturing plant in the United Kingdom. One of these alternatives must be selected. The estimated cash flows for each alternative are listed in the below table.
Alternative A | Alternative B | |
Capital investment |
£ 20,000 |
£ 38,000 |
Annual expenses |
£ 5,500 | £ 4,000 |
Market value at end of useful life | £ 1,000 | £ 4,200 |
Useful | 5 years | 10 years |
Assume that the equipment will be needed indefinitely and the firm’s MARR relative to British pound (GBP) is 20% per year.
Assuming British pound is devalued against the U.S. dollar by 2% per year. What is the equivalent MARR (in percentage) relative to the U.S. dollar?