Polytec Chemical, Inc. must decide between two additives to improve the dry-weather stability of its low-cost acrylic paint. Additive A will have an equipment and installation cost of $125,000 and an annual cost of $55,000. Additive B will have an installation cost of $175,000 and an annual cost of $35,000. If the company uses a 5-year recovery period for paint products and a MARR of 20% per year, which process is favored on the basis of an incremental rate of return analysis? Also, write the function to display ?i*.
What will be an ideal response?
Write ROR equation for increment between B and A
0 = -50,000 + 20,000(P/A,?i*,5)
(P/A,?i*,5) = 2.5000
Solve for ?i* by interpolation or spreadsheet
?i* = 28.6% > MARR = 20% Select B
Function: = RATE(5,20000,-50000) displays 28.65%
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