When the country’s economy is expanding, AB Investment Company is optimistic and expects a MARR of 15% for new investments. However, in a receding economy the expected return is 8%.

Normally a 10% return is required. An expanding economy causes the estimates of asset life to go down about 50%, and a receding economy makes the n values increase about 20%. Which plan should be selected if the company president expects the economy to be

(a) expanding, and (b)

receding?

Plan M Plan Q Initial investment, $ 200,000 240,000 Net cash flow, $/year 65,000 71,000 Life, years 10 10