Initial Rate of Investment Return ($) Rate of Return on Incrementul Investment (%) When Compured with Alternative Investment Alternative (%) A 35,000 12 20 36 27 B 45,000 15 12 40 22 C 50,000 13 42 25 D 65,000 20 -5 E 80,000 18 28

Initial Rate of Investment Return ($) Rate of Return on Incrementul Investment (%) When Compured with Alternative Investment Alternative (%) A 35,000 12 20 36 27 B 45,000 15 12 40 22 C 50,000 13 42 25 D 65,000 20 -5 E 80,000 18 28

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.1.1MBA

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

You are evaluating five investment projects. You have already calculated the rate of return for each alternative investment and incremental rate of return for the two alternatives. In calculating the incremental rate of return, a lower-cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers.

If all investment alternatives are mutually exclusive and the MARR is 12%,
which alternative should be chosen?
(a) D
(b)E
(c) B
(d) Do nothing

Initial Rate of
Investment Return
($)
Rate of Return
on Incrementul Investment (%)
When Compured with Alternative
Investment
Alternative
(%)
A
35,000
12
20
36
27
B
45,000
15
12
40
22
C
50,000
13
42
25
D
65,000
20
-5
E
80,000
18
28

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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