Show complete steps and work PLEASE Question #2 (25 points) For alternatives A a

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Show complete steps and work PLEASE

Question #2 (25 points) For alternatives A and B, if MARR is 15% per year, show the sensitivity plot of each alternative for the case of varying the Net Annual Revenue from-50% to +100%, which alternative has higher sensitivity to the net annual revenue? (Use only three points for each alternative) Item Alternative A S500,000 S150,000 $75,000 $50,000 5 years Alternative B Capital investment Annual revenue Annual expenses Salvage value Useful life 5,000 S130,000 $80,000 S37,000 6 years

Explanation / Answer

Alternative A:

NPW = -500,000 +75,000(P/A, 15%, 5) + 50,000 (P/F, 15%, 5)

          = -500,000 + 75,000(3.352) +50,000(0.4972)

         = -500,000 + 251,400 + 24,860

        = -223,740

Alternative B:

NPW = -375,000 + 50,000(P/A, 15%, 6) + 37,000(P/F, 15%, 6)

          = -375,000 + 50,000(3.784) + 37,000 (0.4323)

         = -375,000 + 189,200 + 15,991.1

         = -169,809

As alternative B has minimum negative flow. Alternative B can be selected.

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