Alternatives A and B require investments of $10,310 and $13,400, respectively. For 5 years their respective net annual cash inflows are $3300 and $4000. What is the rate of return for each alternative and for the incremental difference? If the interest rate is 10%, which alternative should be selected?

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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Alternatives A and B require investments of $10,310 and $13,400, respectively. For 5 years their respective net annual cash inflows are $3300 and $4000. What is the rate of return for each alternative and for the incremental difference? If the interest rate is 10%, which alternative should be selected?

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