5 The following three mutually exclusive alternatives are be

5. The following three mutually exclusive alternatives are being considered for investment. Using a 10-year analysis period and an interest rate of 10%, select the best possible investment. Use of present worth analysis is required. Alternative Initial Cost Benefits $2,500$200 at the end of year 1 and increasing at the rate $60 per S1,300$450 at the end of year 1 and decreasing S50 per year $5,000 $780 at the end of every year with a larger cash flow of year from year 2 through year 9 and none in year 10. thereafter $1,000 in year 10

Solution

Period 10 years Intrest rate 10 % Present value C/(1+i)^n Alternative A Alternative B Alternative C Cost & Benefits Present value Cost & Benefits Present value Cost & Benefits Present value -2500 -2500 -1300 -1300 -5000 -5000 200 181.8181818 450 409.0909091 780 709.0909091 260 214.8760331 400 330.5785124 780 644.6280992 320 240.4207363 350 262.9601803 780 586.0255447 380 259.545113 300 204.9040366 780 532.7504952 440 273.2053821 250 155.2303308 780 484.318632 500 282.236965 200 112.894786 780 440.2896654 560 287.3685462 150 76.97371773 780 400.2633322 620 289.2345757 100 46.65073802 780 363.8757566 680 288.3863805 50 21.20488092 780 330.7961423 0 0 0 0 1000 385.5432894 Present Worth -182.9080862 Present Worth 320.4880919 Present Worth -122.4181339 As the present worth of Alternative B is positive thus alternative B should be choosen.