Assuming that Alternatives B and C are replaced with Identic

Assuming that Alternatives B and C are replaced with Identical units at the end of their useful lives, and an 8% interest rate, which alternative should be selected? Use an annual cash flow analysis.

                                     A                                  B                                       C

Cost                         $10,000                       $150,000                           $20,000

Annual Benefit            1,000                            1,762                                  5,548

Useful Life (yrs)          inifite                            20 years                            5 years

The solution is C at $538 > B at $234 > A at $200

Please thoroughly explain the steps to get these answers to the equations.

Solution

Cost 10000 150000 20000 Benefit 1000 1762 5548 Useful life infinite 20 yrs 5 yrs. benfit*yrs infinite 35240 27740 profit infinite -114760 7740