Question 1 (8 marks)

The following table provides information of five mutually exclusive alternatives that have 20-year of useful lives. The MARR = 6%.

Alternatives
	A	B	C	D	E
Capital investment	$4,000	$2,000	$6,000	$1,000	$9,000
Annual benefit	639	410	761	117	785
IRR on total cash flow	15%	20%	11%	10%	5.9%

Increment considered	D(A-B)	D(B-D)	D(C-B)	D(C-A)	D(A-D)	D(E-A)
IRRD	10%	29%	6%	2%	-17%	-5%

(a) Rank the acceptable alternatives in ascending order of the capital investment in the table below. (2 marks)

Alternatives
Capital investment
Annual benefit
IRR on total cash flow

(b) Explain which alternative is the base alternative. (1 mark)

(c) Conduct the incremental analysis by completing the following table. (4 marks)

Increment considered
Capital investmentD
Annual benefitD
IRRD
Is increment justified?

(d) Which alternative is the best among the five alternatives? (1 mark)