Compute the incremental benefit-cost ratio

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Reference no: EM132032905

Veritas Inc. has decided to acquire a new Hydraulic Excavator. It has three options.

Caterpillar: purchase cost of $356609 and operating costs of $20439 per year (paid at the end of each year).

John Deere: purchase cost of $280828 and operating costs of $24980 per year (paid at the end of each year).

Volvo: purchase cost of $311464 and operating costs of $18932 per year (paid at the end of each year).

Assume that Geek Inc. has a budget of $337082 for this investment and all excavators have a service life of 12 years. Based on the defender-challenger approach and given that the MARR is 9%, reinvestment rate is 8%, and minimum external rate of return is 10%, compute the incremental Benefit-Cost ratio of choosing the best excavator (in economic terms) and then indicate your recommendation as follows: - answer “0” (without the commas) if your recommendation is the Caterpillar; - answer “1” (without the commas) if your recommendation is the John Deere; - write down as your answer the value of the incremental B-C ratio if your recommendation is Volvo.

PLEASE INCLUDE STEPS AND FORMULAS.

Reference no: EM132032905

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