Homework Sourse759148 5 Year Project Project Constant Current Years Dollars
$759,148
5 Year Project
Project Constant Current
Years Dollars ( 2.60% ) Dollars ( 4.90% )
0.9872 0.9764
0.9622 0.9308
0.9378 0.8873
0.9141 0.8458
0.8909 0.8063
| An alternative has a discounted project cost of $2,185,000 with no salvage value. The estimate was in constant dollars and the discounting used mid-year factors. While the period of analysis is 5 years, the alternative only provides benefits for the last 3 years. Calculate the uniform annual cost. |
| ANSWER OPTIONS |
| $796,631 |
| $800,277 |
| $467,798 |
| $759,148 5 Year Project Project Constant Current Years Dollars ( 2.60% ) Dollars ( 4.90% ) 0.9872 0.9764 0.9622 0.9308 0.9378 0.8873 0.9141 0.8458 0.8909 0.8063 |
Solution
If uniform equivalent cost be C, then
2,185,000 = C x 0.9378 + C x 0.9141 + C x 0.8909 = C x (0.9378 + 0.9141 + 0.8909) = C x 2.7428**
C = 2,185,000 / 2.7428 = 796,631
The 1st option is correct.
** Since benefits start from year 3, we have to ignore discounting at year 1 & year 2.
