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Calculate the
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Explanation of Solution
Initial cost (C) is -$210,000. First year cost (C1) is -$150,000. Second year saving (S) is $100 and savings increases (SI) by 60,000 thereafter. Time period (n) is 4.
Rate of return (i) for infinitive time period can be calculated as follows:
Substitute the rate of return as 24% by trial and error method in the above Equation.
When the rate of return is substituted as 24%, the calculated value is greater than the initial cost. Thus, the rate of return increases to 24.7%.
The calculated value is nearly equal to the initial cost with rate of return 24.7%. Thus, it is confirmed that the rate of return is 24.7%.
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Chapter 7 Solutions
EBK ENGINEERING ECONOMY
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