The following cash flows has an interest rate of 10% per year, compounded semian
ID: 1178220 • Letter: T
Question
The following cash flows has an interest rate of 10% per year, compounded semiannually.
Alternative X
Alternative Y
First cost, $
%u2013200,000
%u2013800,000
Annual cost, $/year
%u201360,000
%u201310,000
Salvage value, $
20,000
150,000
Life, years
5
%u221E
The annual worth of perpetual service for alternative X is closest to:
Alternative X
Alternative Y
First cost, $
%u2013200,000
%u2013800,000
Annual cost, $/year
%u201360,000
%u201310,000
Salvage value, $
20,000
150,000
Life, years
5
%u221E
Explanation / Answer
i/year = (1+0.10/2)^2%u2013 1 = 10.25 %
The above is obtained by %u2013200,000(A/P,10.25%,5)%u201360,000 + 20,000(A/F,10.25%,5)
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