You have been asked to evaluate two alternatives, X and Y, that may increase pla

Question

You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydraulic hoses. The parameters associated with each alternative have been estimated. Which one should be selected on the basis of a present worth comparison at an interest rate of 11% per year? why is yours the correct choice? Alternative First Cost Maintenance cost, per $-40,000 $-13000 $3,000 5 years $-75,000 $-8000 $8,500 5 years and that of alternative Y is $ Year Salvage Value Life The present worth of alternative X is $ Alternative (Click to select) is selected by the company.

Explanation / Answer

Answer
PW=-C-A*(P|A,i,n)+SV*(P|F,i,n)
C=first cost
A=annual cost
SV=salvage value

PW of alternative X=-40000-13000*3.695897+3000*0.593451328
=-86266.307
PW of alternative Y=-75000-8000*3.695897+8500*0.593451328
=-99522.8397

The PW of the cost of X is lower than the PW of the cost of Y, in the absolute term so the project X should be selected

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.