5 Homework Homework Help Save & Exit Submit You have been asked to evaluate two

Question

5 Homework Homework Help Save & Exit Submit You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydrau 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 15% per year? why is yours the correct choice? Iternative rst Cost aintenance cost, per ear alvage Value ife $-35,000 $-9000 $5,000 5 years $-95,000 $-5000 $10,500 5 years The present worth of alternative X is $ and that of alternative Y is $- Alternative Click to select is selected by the company. Prev 1 of 10 Next

Explanation / Answer

Total worth = First cost + Maintenance costs*no. of years + salvage value

Total worth of alternative A = - $35000 - ($9000*5) + $5000 = - $ 135000

Present worth of A = -135000(1- 0.15)5 = - $59900.217

Total worth of alternative B = -$95000 -($5000 *5)+ $ 10500 = - $ 109500

Present worth of B = -109500 (1-0.15)5 = - $48585.73

Alternative B has a smaller negative present worth than A, therefore alternative B must be chosen.

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