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?