Two mutually exclusive investment alternatives are being considered. Alternative A requires an initial investment of $20,000 in

Question:

Two mutually exclusive investment alternatives are being considered. Alternative A requires an initial investment of $20,000 in a machine. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of $8,000 and a standard deviation of $600. The at the end of its life (10 years) is anticipated to be normally distributed, with a mean of $2,000 and a standard deviation of $900. Alternative B requires end-of-year annual expenditure over the ten-year planning horizon, with the annual expenditure being normally distributed with a mean of $10,500 and a standard deviation of $1,200. Using a of 12% per year, what is the probability that alternative A is the most economic alternative (i.e., the least costly)?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...