Selected Solutions - 8
Selected Solutions - 8
Selected Solutions - 8
Student: You should work the problem completely before referring to the solution.
CHAPTER 8
Solutions included for problems 1, 4, 7, 10, 13, 16, 19, 22, 25, 28, 31, 34, 37, 40, and 43
8.1 (a) The rate of return on the increment has to be larger than 18%.
(b) The rate of return on the increment has to be smaller than 10%.
Chapter 8 1
PROPRIETARY MATERIAL. © The McGraw-Hill Companies, Inc. All rights reserved. No part of this solution may be
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beyond the limited distribution to students, teachers and educators permitted by McGraw-Hill for their individual courses. As a
student, you are invited to refer to and learn from this solution, but you should not submit it as your own work for a course in which
you are enrolled. Such action is considered plagiarism
8.16 0 = -10,000 + 1200(P/A,i,4) + 12,000(P/F,i,2) + 1000(P/F,i,4)
8.22 Find ROR for incremental cash flow over LCM of 4 years
Chapter 8 2
PROPRIETARY MATERIAL. © The McGraw-Hill Companies, Inc. All rights reserved. No part of this solution may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to students, teachers and educators permitted by McGraw-Hill for their individual courses. As a
student, you are invited to refer to and learn from this solution, but you should not submit it as your own work for a course in which
you are enrolled. Such action is considered plagiarism
8.28 (cont)
D vs DN: 0 = - 53,000(A/P,i,8) + 10,500 - 2000(A/F,i,8)
Solve for i by trial and error or Excel
i = 11.1% (Excel)
Method D is acceptable
Select method C
8.31 (a) Select all projects whose ROR > MARR of 15%. Select A, B, and C
(b) Eliminate alternatives with ROR < MARR; compare others incrementally:
Eliminate D and E
Rank survivors according to increasing first cost: B, C, A
B vs C: i = 800/5000
= 16% > MARR Eliminate B
C vs A: i = 200/5000
= 4% < MARR Eliminate A
Select project C
Chapter 8 3
PROPRIETARY MATERIAL. © The McGraw-Hill Companies, Inc. All rights reserved. No part of this solution may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to students, teachers and educators permitted by McGraw-Hill for their individual courses. As a
student, you are invited to refer to and learn from this solution, but you should not submit it as your own work for a course in which
you are enrolled. Such action is considered plagiarism
8.34 (a) Find ROR for each increment of investment:
(b) Revenue = A = Pi
E: A = 20,000(0.20) = $4000
F: A = 30,000(0.35) = $10,500
G: A = 50,000(0.25) = $12,500
H: A = 80,000(0.20) = $16,000
Select alternative H
Chapter 8 4
PROPRIETARY MATERIAL. © The McGraw-Hill Companies, Inc. All rights reserved. No part of this solution may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to students, teachers and educators permitted by McGraw-Hill for their individual courses. As a
student, you are invited to refer to and learn from this solution, but you should not submit it as your own work for a course in which
you are enrolled. Such action is considered plagiarism
8.34 (cont)
(e) Conduct incremental analysis using results from part (a).
E vs DN: i = 20% > MARR, eliminate DN
E vs F: i = 65% > MARR, eliminate E
F vs G: i = 10% < MARR, eliminate G
F vs H: i = 11% < MARR, eliminate H
Chapter 8 5
PROPRIETARY MATERIAL. © The McGraw-Hill Companies, Inc. All rights reserved. No part of this solution may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to students, teachers and educators permitted by McGraw-Hill for their individual courses. As a
student, you are invited to refer to and learn from this solution, but you should not submit it as your own work for a course in which
you are enrolled. Such action is considered plagiarism