Question

Initial investment A = $1,000, Initial investment B = $2,000, and Initial investment C = $3,000. DN= Do nothing. If the alternatives are mutually exclusive and the MARR is 12% per year, which alternative(s) should be selected?

Comparison	i*, %	Δi*, %
A to DN	20	-
B to DN	10	-
C to DN	15	-
B vs A	-	-10
C vs A	-	15
C vs B	-	85

		Alternative C
		Alternative A
		Alternative DN
		Alternative B

Answer 1

Let's arrange the given alternatives in the order of investment.

a) Do Nothing (Investment = $0)

b) Alternative A (Investment = $1,000)

c) Alternative B (Investment = $2,000)

d) Alternative C (Investment = $3,000)

First, let's compare Alternative A with Do Nothing.

Since i of A to DN is 20%, which is higher than MARR, i.e., 12%, select A

Now, let's compare Alternative A with next higher investment, i.e, Alternative B.

Here, i of B vs A is -10%, which is less than MARR. So, select A

Finally, let's compare Alternative A with next higher investment, i.e., Alternative C.

As i of C vs A is 15%, which is higher than MARR, select C.

Alternative C should be selected.