The Larkspur Furniture Company needs a new grinder Compute t

The Larkspur Furniture Company needs a new grinder. Compute the present worth for these mutu- ally exclusive altenatives and identify which you would recommend given 6% per year. Larkspur uses a 10-year planning horizon Alternative Initial cost $4500 $5500 Annual costs $300 $400 Salvage value $500 Life SO 5 years 10 years 17. What is the NPW of Alternative A? 18. What is the NPW of Alternative B? 19. Which alternative is the best choice? 20. Which alternative has the lower NPW of costs?

Solution

17) The NPW for alternative A=

-$4500+(-$4500)(P/F,6%,5)-$300(P/A,6%,10)+$500(P/F,6%,10)

-$4500-$4500(0.7473)-$300(7.360)+($500(0.5584)

=-$9791.49

18) The NPW for alternative B=

-$5500-$400(P/A,6%,10)

-$5500-$400(7.360)

= -$8444.03

The alternative B is the best choice of the two as it is yielding a lower present worth of the costs.