Two financial choices are available. We will compare them using the standard cri

Question

Two financial choices are available. We will compare them using the standard criteria that the Annual Worth of one is greater than the annual worth than the other. The first choice has an initial investment of 40,000. It generates a yearly revenue of 18000 and at the end of three years has a salvage value of 6000. The second choice has an initial investment of 30,000. It generates a yearly revenue of 12000 and at the end of 6 years has a salvage value of 4000. The interest rate environment is 3%. The management wishes the Time Horizon to be 24 years and assume exact repetition of the choice after each time period is completed. Analyze the two choices using Annualized Worth.

Explanation / Answer

A)

thus AW= 50899+5491-40000

=16390 approx

B)

AW=65000+3350-30000

=38350 approx

thus B is better

amount MARR @3% year product 40000 1 0 40000 18000 2.8277 1-3 50899 6000 .9151 3 5491

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