Compare 10 years the alternatives C and D on the basis of a

Compare 10 years the alternatives C and D on the basis of a present worth analysis using an interest rate of 10% per year and a study period of Alternative rst Cost Annual Increase in Operating Cost, per Year Salvage Value $-1,000 $-1.200 0 The present worth of alternative C is S?m) and that of altern Click to select)offers the lower present worth analysis ative Dis $

Solution

ANSWER:

i =10% and n = 10 years for both the alternatives.

1) PW of alternative c = initial cost + aoc(p/a,i,n) + gradient(p/g,i,n) + salvage value(p/f,i,n)

pw of alternative c = -40,000 -12,000(p/a,10%,10) -1,000(p/g,10%,10) + 9,000(p/f,10%,10)

pw of alternative c = -40,000 - 12,000 * 6.145 - 1,000 * 22.891 + 9,000 * 0.3855

pw of alternative c = -40,000 - 73,740 - 22,891 + 3,469.5

pw of alternative c = -$133,162

2) PW of alternative d = initial cost + aoc(p/a,i,n) + gradient(p/g,i,n) + salvage value(p/f,i,n)

pw of alternative d = -31,000 -6,500(p/a,10%,10) -1,200(p/g,10%,10) + 1,000(p/f,10%,10)

pw of alternative d = -31,000 - 6,500 * 6.145 - 1,200 * 22.891 + 1,000 * 0.3855

pw of alternative d = -31,000 - 39,942.5 - 27,469.2 + 3,855

pw of alternative d = -$94,556.7

since pw of alternative c is less then alternative d , we select alternative d.

alternative d offers the lower present worth analysis.