In comparing alternatives with different lives by the present worth (PW) method,

Question

In comparing alternatives with different lives by the present worth (PW) method, it is necessary to: compare them over a period equal to the life of the longer-lived alternative ?. I ind the PW over one life cycle for each alternative C Compare them over a period equal to the life of the shorter-lived alternative (D; Compare them over a time period of equal service Use the data from the following table, and an interest of 10% per year. In comparing the machine on present worth basis, PW for machine B is closet to:

Explanation / Answer

1.

Correct Answer:

B. Find the PW over one life cycle for each alternative

Explanation:

Present worth calculation for the whole life cycle for each alternative is necessary to find the true discounted worth of each alternative. Then, we can compare and find the best alternative.

Alternative D cannot be selected because cash flows are uneven in many cases and it also varies across the life span of the alternative. Thus, considering an equal period for all the alternatives will not be wise.

Pl. repost other unanswered questions for their proper answers!

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