Given the data in the table below, choose the better alternative-using present w
ID: 1092020 • Letter: G
Question
Given the data in the table below, choose the better alternative-using present worth analysis if MARR is 8%.
Data
Alternative
A
B
Initial Cost
$10,000
$9,000
Annual Benefits
$5,200
$4,700
Annual Expenses
$3,000
$2,000
Salvage Value
$1,200
$1,300
Useful Life in Years
6
4
A.
Alternative A, $2,040
B.
Alternative A, $1,510
C.
Alternative B, $2,040
D.
Alternative B, $1,510
Data
Alternative
A
B
Initial Cost
$10,000
$9,000
Annual Benefits
$5,200
$4,700
Annual Expenses
$3,000
$2,000
Salvage Value
$1,200
$1,300
Useful Life in Years
6
4
Explanation / Answer
Answer:
Alternative A:
Initial Outflow = 10000
cash Inflow (Annual) = Benefits - Expenses = 5200 - 3000 = $ 2200
So , Present Value Of Inflows( 6Year, 8%)= (Annual Inflow * Sum of P.V.F (8%, 6)
= 2200 * 4.622880 = $ 10170
present valu of Salvage = (1200 * P.V.F for 6th year) = 1200 * 0.63017 = $756
Therefore, Net Present Worth = (Present Value of Inflow - Initial Outflow) + Present Value of Salvaze
= (10170 - 10000) + 756 = $ $ 926
Alternative B:
Initial Outflow = 90000
cash Inflow (Annual) = Benefits - Expenses = 4700 - 2000 = $ 2700
So , Present Value Of Inflows( 4Year, 8%)= (Annual Inflow * Sum of P.V.F (8%, 4)
= 2700 * 3.31213 = $ 8943
present value of Salvage = (1300 * P.V.F for 4th year) = 1300 * 0.73503 = $956
Therefore, Net Present Worth = (Present Value of Inflow - Initial Outflow) + Present Value of Salvaze
= (8943 - 9000) + 956 = $ 899
Therefore, Should Choose Alternative A. beacause it have More NPV as compared to Alternative B.
THankyou
(Chirag Nagpal)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.