Engineering Board Exam Reviewer · Rate of Return Analysis · hard
Machine A costs P100,000 and returns P25,000 per year for 8 years. Machine B costs P150,000 and returns P36,000 per year for 8 years. Find the incremental rate of return of B over A.
- 24%
- 25%
- 14.61%
- 22%
Answer
C. 14.61%
Solution
The increment costs 150,000-100,000=P50,000 and returns 36,000-25,000=P11,000 per year. Solve 50,000=11,000(P/A,i,8) (P/A,i,8)=4.5455. Solving numerically gives i 14.61%.
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