Help Save & Exit Submit You have been asked to evaluate two alternatives, X and

Question

Help Save & Exit Submit 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 13% per year? why is yours the correct choice? 10 Iternative intenance cost, per ar vage Value fe $-13000 $2,500 5 years S-2000 $12,500 5 years Print The present worth of alternative xis $ and that of alternative Y is ST- References Alternative (Click to select) is selected by the company

Explanation / Answer

Present worth of alternative X = -30000 + 2500(P/F, 13%, 5) - 13000(P/A, 13%, 5)

= -30000 + 2500*0.54276 - 13000*3.517231

= -74,367

Present worth of alternative Y = -30000 + 2500(P/F, 13%, 5) - 13000(P/A, 13%, 5)

= -70000 + 12500*0.54276 - 2000*3.517231

= -70,250

Since Y is relatively cheaper we select alternative Y.

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