Assignment 4pdf yD Microsoft WordProject n lghdmljfgngidpea

Assignment 4.pdf ×yD Microsoft Word-Project.× n: / lghdmljfgngidpeai gebkilpiirnk/pdf-viewer.html?file https%3A%2F%2Fecourses aud.edu%2Fbb swe Q2) consider the following four alternatives as shown in the table. One of the four alternatives is do nothing alternative. Which alternative would you choose using the NPW analysis, if the alternatives are evaluated at a) an interest rate of 8%. b) an interest rate of 12% Do nothing C $500 $600 Initial Cost O&M; costs Annual benefit Salyage value Life. in years 970 100 250 $700 1200 100 180 1600 135 0 0 10

Solution

a) NPWA = -500-(1465/(1+0.08)^1)-(1465/(1+0.08)^2)-(1465/(1+0.08)^3)- (1465/(1+0.08)^4)-(1465/(1+0.08)^5) = -$6349.32
NPWB =-600-(870/(1+0.08)^1)-(870/(1+0.08)^2)-(870/(1+0.08)^3)-(870/(1+0.08)^4)-(620/(1+0.08)^5) = -$3903.51
NPWC=-700-1200+100+180 = -$1620
b) NPWA = -500-(1465/(1+0.12)^1)-(1465/(1+0.12)^2)-(1465/(1+0.12)^3)- (1465/(1+0.12)^4)-(1465/(1+0.12)^5) = -$5781
NPWB =-600-(870/(1+0.12)^1)-(870/(1+0.12)^2)-(870/(1+0.12)^3)-(870/(1+0.12)^4)-(620/(1+0.12)^5) = -$3594.3
NPWC=-700-1200+100+180 = -$1620

The alternative with lowest NPW needs to be selected and hence Alternative C can be selected at interest rate of 8 and 12 percent. The other priorities would be alternative B followed by alternative A.