Three alternatives have the following cost data associated with them:DataAlt. 1Alt. 2Alt. 3Useful Life, Years101010First Cost$1,325,000$1,980,000$1,650,000Annual Benefit265,000589,000435,000Annual M&O Costs95,00097,00091,000Annual M&O Gradient2,3002,1001,980Salvage Value145,000205,000178,000Loan Payment150,946225,565187,971The loan payments are calculated using an interest rate of 10%, a life equal to the life ofthe machine, and a down payment of 30%. Use a MARR of 12% and determine whichmachine, if any, should be purchased. Use incremental analysis.

Incremental internal rate of return refers to the process of analyzing the estimated rate of return…

Answered: al Benefit al M&O Cost al M&O Grac age…

Business

Accounting

al Benefit al M&O Cost al M&O Grac age Value Payment

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Three alternatives have the following cost data associated with them:
Data
Alt. 1
Alt. 2
Alt. 3
Useful Life, Years
10
10
10
First Cost
$1,325,000
$1,980,000
$1,650,000
Annual Benefit
265,000
589,000
435,000
Annual M&O Costs
95,000
97,000
91,000
Annual M&O Gradient
2,300
2,100
1,980
Salvage Value
145,000
205,000
178,000
Loan Payment
150,946
225,565
187,971
The loan payments are calculated using an interest rate of 10%, a life equal to the life of
the machine, and a down payment of 30%. Use a MARR of 12% and determine which
machine, if any, should be purchased. Use incremental analysis.

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