The following data is available for three different alternatives. MARR =12% Data

Question

The following data is available for three different alternatives. MARR =12%

Data

Alt. A

Alt. B

Alt. C

Initial Cost

$6,000

$900

$1,500

Uniform Annual Benefits

$525

$300

$450

Useful Life , Years

20

5

10

Alternatives B and C are replaced at the end of their useful lives with identical replacements.

Using the above data, find the best alternative using payback analysis

Alt. A

None

Alt. B

Alt. C

Data

Alt. A

Alt. B

Alt. C

Initial Cost

$6,000

$900

$1,500

Uniform Annual Benefits

$525

$300

$450

Useful Life , Years

20

5

10

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Payback Period = Initial Investment/Annual Uniform Benefits

--------------

Alternative A = 6000/525 = 11.43 Years

Alternative B = 900/300 = 3 Years

Alternative C = 1500/450 = 3.33 Years

Alternative B should be chosen as it as the lowest payback period. It is the best alternative.

Thanks.

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