Problem 5-36 (book/static) Question Help Consider the two mutually exclusive ser

Question

Problem 5-36 (book/static) Question Help Consider the two mutually exclusive service projects in the table below. Assuming that you need service of either machine for an indefinite period, which project would be selected at i= 16%? Assume that both types of machine are available with the same costs and benefits during the planning horizon. Use 6 years as the common analysis period EEB Click the icon to view the cash flows for the service projects Click the icon to view the interest factors for discrete compounding when i More Info The present worth of project A for the 6 years analysis period is $L thousand Project's Cash Flow $22,000 17,500 17,000 15,000 -$27,000 20,500 28,000 Enter your answer in the answer box and then click Check Answer PrintDone parts remaining

Explanation / Answer

PV=FV*(1+i)^(-n)
and minus the cost and; benefits are added and we use the same cash fro for next 3 years only in the year 3 there is the benefit of 15000 and cost is 22000 so net cost is $7000, using these
PV=-22000+17500*(1.16^(-1))+17500*(1.16^(-2))-7000*(1.16^-3))+17500*(1.16^(-4))+17500*(1.16^-5))+15000*(1.16^-6))
=25760.6597573
The PV of the project is $25.76 thousand
Note: if the decimal is not allowed round it up to 26.

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