At an interest rate of 8% per year and a present worth analysis, which method sh

Question

At an interest rate of 8% per year and a present worth analysis, which method should be selected? Method (A) First Cost: -$450,000 M&O cost, year 1: -$90,000 Increase in M&O, per year: $7000 Salvage Value: $80,000 Life, years: 5 Method (B) First Cost: -$850,000 M&O cost, year 1: -$10,000 Increase in M&O, per year: $1000 Salvage Value: $300,000 Life, years: 5 The answers are Method A = -781,502; Method B = -693,119. However, I have been working on this problem for a few days and none of the equations I have used come up these answers, or even close. Help is greatly appreciated. Thank you to all of those who help out. I keep coming up with for Method A -760,840 for a cash value. Likewise for option B I am around $20000 off as well.

Explanation / Answer

present worth for method A = -450000 - 900000*(1-1.08^-5)/0.08 - 7000*(1-1.08^-4)/(0.08*1.08) + 80000/1.08^5 = -781502

For method B = -850000 -10000*(1-1.08^-5)/0.08 -1000*(1-1.08^-4)/(0.08*1.08) +300000/1.08^5 = -693119

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