Consider two mutually exclusive alternatives stated in year-O dollars. Both alternatives have a 3-year life with no

Question:

Consider two mutually exclusive alternatives stated in year-O dollars. Both alternatives have a 3-year life with no salvage value. Assume the annual inflation rate is 5%, an income tax rate of 25%, and straight line depreciation. The minimum attractive rate of return (MARR) is 7%. Use rate of return analysis to determine which alternative is preferable.

Year A B

0 -$420 -$300

1 200 150

2 200 150

3 200 150

Depreciation
Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...