Answer:
7.98%
Explanation:
The Rate of Return (ROR) is the gain or loss of an investment over a period of time compared to the initial cost
Starting year 2, Annual O&M cost in year N = Annual O&M cost in year (N - 1) + $750
Annual net benefit = Annual revenue - Annual O&M cost
In year 10, Annual revenue ($) = 72,000 + 35,000 salvage value = 107,000
Rate of Return (ROR) of Annual net benefit is computed using Excel11 IRR function as follows.
Year (N) Revenue ($) Cost ($) NAB ($)
0 4,50,000 -4,50,000
1 72,000 4,500 67,500
2 72,000 5,250 66,750
3 72,000 6,000 66,000
4 72,000 6,750 65,250
5 72,000 7,500 64,500
6 72,000 8,250 63,750
7 72,000 9,000 63,000
8 72,000 9,750 62,250
9 72,000 10,500 61,500
10 1,07,000 11,250 95,750
ROR of NAB = 7.98%
