Solution for the Assigned questions for Chapter 8

8.2 The alternative that should be selected is the one that requires the lower initial investment.
8.3 He must include the first and third alternatives in an incremental analysis.
8.6 Cannot determine which one should be selected because even though it is known that the ROR
on the increment of investment is less than 22% per year, it is not known if it is equal to or greater
than the companys MARR of 19%. An incremental ROR analysis must be conducted.
8.9 Overall ROR = [100,000(0.24) + 300,000(0.18) + 200,000(0.30)]/600,000
= 0.23 (23%)
8.12

Year
0
1
2
3
4
5
6
Sum =

Alternative Q
-85,000
43,000
43,000
43,000
43,000
43,000
43,000

Alternative P
-50,000
13,400
13,400
13,400
13,400
13,400
+8,000

Q - P__
-35,000
29,600
29,600
-50,000+3000 76,600
29,600
29,600
13,400+3,000 34,600
+194,600

8.16

(a) 0 = -4600 + 1100(P/A,i*,9) +2000(P/F,i*,10)

Solve for i by trial and error or spreadsheet
i* = 21.9% per year (RATE function on spreadsheet)
(b) i* = 21.9% per year < MARR = 25%; select Alternative P3

8.22

0 = -900,000 + AOC(P/A,40%,3)
0 = -900,000 + AOC(1.5889)
AOC = $566,430
Required reduction = 566,430 400,000
= $166,430 per year

8.29 Revenue alternatives; calculate overall ROR first and compare to MARR =10%.
i44* = 4.2% (eliminate)
i55* = 6.0% (eliminate)
i88* = 10.7% (retain)
Rank remaining alternative by increasing initial investment: DN, 88
DN vs 88: 0 = -61,000 + 7500(P/A, i*,20)
(P/A, i*,20) = 8.1333
Solve for i* by trial and error or spreadsheet
i* = 10.7% per year (RATE function)
i* > MARR = 10%; select 88 Mbps