Four mutually exclusive alternatives are being evaluated, and their costs and re

Question

Four mutually exclusive alternatives are being evaluated, and their costs and revenues are itemized in Table a. If the MARR is 10% per year and the analysis period is 12 years, use the PW method to determine which alternatives are economically acceptable and which one should be selected? Capital Investment Annual Revenues less expenses Market Value (end of useful life) Useful life (years) $125,000 15,200 10,000 12 $130,000 31,900 10,000 12 120,000$180,000 41,500 15,000 12 35,900 15,000 12 Alternative I, PW $128,000 Alternative I, PW -$325,000 Alternative III, PW-$117,363 Alternative II, PW-$216,125

Explanation / Answer

The PW of I is given by PW = -125000 + 10000(P/F, 10%, 12) + 15200(P/A, 10%, 12) = -18246

The PW of II is given by PW = -130000 + 10000(P/F, 10%, 12) + 31900(P/A, 10%, 12) = 90543

The PW of III is given by PW = -120000 + 15000(P/F, 10%, 12) + 35900(P/A, 10%, 12) = 129391

The PW of IV is given by PW = -180000 + 15000(P/F, 10%, 12) + 412500(P/A, 10%, 12) = 107547

Hence We select alternative III so 3rd option is selected.

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