Question

Jupiter Inc. has decided to acquire a new weather satellite. After considering several options it has narrowed its search to two satellites.

Satellite XPTO: purchase cost of $348,217 and operating costs of $35,265 per year (paid at the end of each year).

Satellite XYZ: purchase cost of $105,205 and operating costs of $59,078 per year (paid at the end of each year).

Both satellites have a service life of 12 years. Based on the defender-challenger approach and given that the MARR is 3%, reinvestment rate is 11%, and minimum external rate of return is 11%, compute the incremental external rate of return of choosing the most expensive satellite. Note: round your answer to two decimal places, and do not include spaces, percentage signs, plus or minus signs, nor commas. If your answer is 15%, write 15, not 0.15.

Answer 1