Alternative A Alternative B 2800 6830 500 1120 360 895 5 5 Alternative A should
ID: 1091724 • Letter: A
Question
Alternative A
Alternative B
2800
6830
500
1120
360
895
5
5
Alternative A should be chosen, because its initial cost is lower than Alternative B's
Alternative B should be chosen, because its annual benefit is higher than Alternative A's
Alternative A should be chosen, because its equivalent annual cost is $241.81 lower than Alternative B's
Alternative B should be chosen, because its equivalent annual cost is $241.81 higher than Alternative A's
Alternative A
Alternative B
Initial Cost2800
6830
Annual Benefit500
1120
Salvage Value360
895
Useful Life (yrs)5
5
Explanation / Answer
Equivalent annual cost for A = 2800(A/P,6%,5) -500-360(A/F,6%,5) = $100.85
Equivalent annual cost for B = 6830(A/P,6%,5)-1120-895(A/F,6%,5) = $342.65
Hence,
Alternative A should be chosen, because its equivalent annual cost is $241.81 lower than Alternative B's
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