Refer to Problem 4.12. Find which alternative is preferable using the IRR method and a ALARR of 5%. Assume that one of the alternatives must be chosen. Answer the following questions by using present worth computations to find the IRRs. Use the least common\ multiple of sendee lives.
(a) What are the cash flows for each year of the comparison period (i.e., the least common multiple of sendee lives)?
(b) Are you able to conclude that there is a single IRR on the incremental investment? W h y or why not?
(c) Which of the two alternatives should be chosen? Use the ERR method if necessary.
Problem 4.12:
Sam is considering buying a new lawnmower. He has a choice between a "Lawn Guy" mower and a Bargain Joe's "Clip Job" mower. Sam has a ALARR of 5%. The salvage value of each mower at the end of its sendee life is zero.
(a) Using the information on the next page, determine which alternative is preferable. Use a present worth comparison and the least common multiple of the sendee lives.
(b) For a four-year study period, what salvage value for the Lawn Guy mower would result in its being the preferred choice? Wha t salvage value for the Lawn Guy would result in the Clip Job being the preferred choice?
