Answer:
The correct answer is option B PW = - $50 + 8 (P/A, 0.08, 10)
Explanation:
Recall that
The initial cost for Alternative A is $100 and a uniform annual benefit of $19.93
The initial cost for Alternative B is $50 and a uniform annual benefit of $11.93
The two alternatives has a useful life of 10 years
Now, we will show the rate return analysis given below
Alternative -A Alternative -B A-B
The First cost $100 $50 $50
The annual benefit $19.93 $11.93 $8.93
The Expected life 10 years 10 years 10 years
Thus the increment rate will be computed as,
PW = -P + A (P/A, i, n) ...This is the equation (1)
now,
P = is the first cost
n= The rime period
A= Annual benefit
I = the interest rate
Thus,
We substitute this values into the equation 1 stated
Which is,
PW = - $50 + 8 (P/A, 0.08, 10)
Therefore PW = - $50 + 8 (P/A, 0.08, 10) this will solve for the IRR correction based on Rate of Return Analysis.
