You have been asked to make a decision regarding alternatives from two companies

Question

You have been asked to make a decision regarding alternatives from two companies.

To make your decision, use Net Present Worth Analysis.

The first alternative (from Superior Services, Inc.) has the characteristics shown in the chart below.

The second alternative (from BestCo, LLC) has a 10-year life span.

Fortunately, its NPW has already been calculated for you (based on its given life span).

The NPW for alternative two was found to be $35,750. Given this information, decide which, if any, of the two options should be chosen. MARR = 10%. Answer =(28,977.62; choose BestCo, LLC)

Superior Services Initial Cost $25,000
O&M Costs $500 per year

Benefits $10,000 the first year, growing by $1,000 each year after

Life (in years) 5

please show all formulas and step by step answer.

Explanation / Answer

NPV of Superior Services = -25000 + 9500 /(1.1)^1 + 10500 /(1.1)^2 + 11500 /(1.1)^2 + 12500 /(1.1)^3 + 13500 /(1.1)^4 + 13500 /(1.1)^5

= 17874.27

so choose choose BestCo, LLC because its NPV is greater

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