Final answer:
Selecting an investment involves different approaches such as payback period, future worth analysis, and benefit-cost ratio, each potentially leading to different choices. Differences arise from the varied focus of each method on short-term gains, long-term value, or overall efficiency.
Step-by-step explanation:
When selecting an alternative investment with no salvage value, the method of analysis can lead to different recommendations. To address each part of the question:
- Payback period: This method measures how quickly an investment will pay back its initial cost. The option with the shortest payback period is often preferred when using this metric.
- Future worth analysis involves calculating the future value of an investment's cash flows, discounted at the minimum acceptable rate of return (MARR), here 10%. The alternative with the highest future worth would be selected.
- Benefit-cost ratio analysis: This compares the present value of a project's benefits to the present value of its costs. An option with a benefit-cost ratio greater than 1 is considered economically feasible, and the one with the highest ratio is usually chosen.
If the answers differ, it could be due to the different focus of each method. The payback period looks at short-term recovery of costs, future worth analysis emphasizes the value over time, and the benefit-cost ratio evaluates the overall efficiency of the investment. The marginal analysis would suggest an optimal point where the marginal benefit equals the marginal cost, providing a different perspective focused on efficiency at each additional unit of investment or restoration effort.