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Three investments are being evaluated by a local financial corporation in Manitoba. The table below summarizes expected cash flows for each of the three investments
Three investments are being evaluated by a local financial corporation in Manitoba. The table below summarizes expected cash flows for each of the three investments over the next seven years. Due to budget limitations, the corporation will only choose one investment out of the three investments. At a MARR (Minimum Acceptable Rate of Return) of 8%, answer the following. Investment Initial Cost Expenses per Year Return at end of year 7 1 $100,000 $40,000 for the first year, increasing by $600,000 $2,000 per year thereafter 2 $360,000 $85,000 for the first year, increasing by $1,600,000 $4,000 per year thereafter $185,000 $55,000 for the first year, increasing by $850,000 $3,000 per year thereafter 3 a) Determine the economically best investment for the corporation using a rate of retum method. (14Marks) b) Is it always the case for the alternative with the highest rate of return to be the economically best alternative? (5 Marks) c) Are you expecting different results if the comparison is based on Future Worth? (Hint: no calculations are needed) (6 Marks)
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