Determine the rate of return of each plan

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Reference no: EM131806064

Two alternative investment proposals are under consideration for a vacant owner by Urban Development Corporation.

Plan A would require an immediate investment of $120,000 and first-year expenditure for property taxes, maintenance, and insurance of $4.000, with this amount expected to increase a rate of $1,000 per year.

Plan B would have a first cost of $170,000 and total first-year expenses of $9,000, with an increase of $1,000 per year.

The economic life of each project is forecast to be 10 and at the end of this time, only the facilities from Plan a value of $50.000 are expected to salvage During the life of the project, the facility in plan A is expected to produce $34.000 annually, whereas Plan B expected to produce $42.000.

a) Determine the rate of return of each plan.

b) Determine the rate of return of the Additional investment required in Plan B compared A with Plan A.

c) Which plan should Urban Development select if the company uses a MARR of 12 percent?

Reference no: EM131806064

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