Incremental Analysis

4: Two mutually exclusive alternatives are being considered. Both have lives of 6 years. Alternative A has a first cost of $2500 and annual benefits of $746. Alternative B costs $6000 and has annual benefits of

$1664. The minimum attractive rate of return is 15%.

(a) What is the incremental rate of return between the two alternatives?

Answer: <8 pts>

Reasoning/Work:

(b) Which alternative should be selected?

Answer: <2 pts>

Reasoning/Work:

Analysis Period

5: Jean has decided it is time to buy a new battery for her car. Her choices are:

Zappo Kicko

First cost $56 $120

Guarantee period (months) 12 36

Jean believes the batteries can be expected to last only for the guarantee period. She does not want to invest extra money in a battery unless she can expect a 50% rate of return. She plans to keep her car another 3 years.

(a) What is the incremental rate of return between the two batteries?

Answer: <10 pts>

Reasoning/Work:

(b) Which battery should be selected?

Answer: <2 pts>

Reasoning/Work: