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floreschachi2873
22.06.2021 •
Business
Two alternatives for a construction project are being considered. Both projects have a 5-year life. Alternative A's initial cost is $2,260 and yields $355 annually for 5 years. Alternative B initially costs $5500 and yields $1,250 annually for 5 years. The rate of return on the difference between the alternatives is approximately
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Ответ:
The rate of return on the difference between the alternatives is approximately 38.12%.
Explanation:
Alternative A's initial cost = $2,260
Alternative A's total yields for 5 years = $355 * 5 = $1,775
Alternative B's initial cost = $5,500
Alternative B's total yields for 5 years = $1,250 * 5 = $6,250
Difference between initial costs of A and B = Alternative B's initial cost - Alternative B's initial cost = $5,500 - $2,260 = $3,240
Difference between total yields for 5 years of A and B = Alternative B's total yields for 5 years - Alternative A's total yields for 5 years = $6,250 - $1,775 = $4,475
Rate of return on the difference between the alternatives = (Difference between total yields for 5 years of A and B - Difference between initial costs of A and B) / Difference between initial costs of A and B = ($4,475 - $3,240) / $3,240 = 0.3812, or 38.12%
Therefore, the rate of return on the difference between the alternatives is approximately 38.12%.
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im confused
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