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 $336265 and operating costs of $33495 per year (paid at the end of each year).

Satellite XYZ: purchase cost of $102246 and operating costs of $62006 per year (paid at the end of each year).

Both satellites have a service life of 8 years. Based on the defender-challenger approach and given that the MARR is 5%, reinvestment rate is 10%, 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: 4.23

I'm trying to unerstand how this answer was obtained. if as much work could be shown as possible that would be great! Thank you!

Answer 1