How to Solve Rate of Return Analysis Problems

[MHrtz]

Homework Statement

I missed class when we went over this so I'm clueless.

1. Gene Milton borrowed today a sum of $5,000 from his uncle Ben and at the end of year three paid a sum of $5,000 and paid another $1,000 at the end of year four to pay off the loan. Determine the interest rate if the payments are based on yearly compounding.

A. 6.27
B. 6.9
C. 7.81
D. 8.1

2. Which alternative should be selected if MARR = 10%.

Alt. X costs 100 at time 0 and has a benefit of $35 for the next 4 years
Alt. Y costs 50 at time 0 and has a benefit of $16.5 for the next 4 years

A. Alt. X
B. Alt. Y
C. neither
D. both

3. choose the most attractive alternative if MARR = 8%

Alt. A costs 42K initially and has a benefit of 3.6K from t=1 to infinity
Alt. B costs 54K initially and has a benefit of 4.7K from t=1 to infinity

A. Alt. B
B. Alt. A
C. neither
D. both

4. The incremental Cash flow is as follows:

year 0 = -20000
year 1-10 = 3000
year 10 = 400

What equation(s) can be used to correctly solve for incremental rate of return:

A. 0 = -20000 + 3000(P/A,i,10) + 400(P/F,i,10)
B. 0 = -20000(A/P,i,10) + 3000 + 400(A/F,i,10)
C. 0 = -20000(F/P,i,10) + 3000(F/A,i,10) + 400
D. All the above

The last one I can probably figure out if I get the solutions to these.

The Attempt at a Solution

I don't know if these are right but this is what I got:

1. A
2. A
3. A
4. D

Please Help.

 

[morrowcosom]

I am earning a master's degree in business management and that higher level finance was a b, I forgot most of it. Keep bumping your post up, but show your work (even if its is complete guessing) so somebody will be more tempted to help you and point out what if any mistakes you made and then point you in the right direction.

Later

 

[MHrtz]

Ok. I confirmed 2 and 3 are right.

For #1 I set the 5000 = 5000(1 + i)^(-3) + 1000(1 + i)^(-4)

Then I tried to solve for i but I didn't get any of the answer choices.

I have no clue how to do #4.