4) An alternative has a discounted project cost of $19,345,000 with a discounted

Question

4) An alternative has a discounted project cost of $19,345,000 with a discounted salvage value of 1,750,000. The estimate was in constant dollars and the discounting used end-of-year factors. While the period of analysis is 5 years, the alternative only provides benefits for the last 4 years. Calculate the uniform annual cost.

4,810,137

5,193,023

3,798,083

5,896,471

using EOY factors and constant dollars from the table:

1 .9747

2 .9500

3 ,9259

4 ,9024

5 ,8796

4) An alternative has a discounted project cost of $19,345,000 with a discounted salvage value of 1,750,000. The estimate was in constant dollars and the discounting used end-of-year factors. While the period of analysis is 5 years, the alternative only provides benefits for the last 4 years. Calculate the uniform annual cost.

4,810,137

5,193,023

3,798,083

5,896,471

using EOY factors and constant dollars from the table:

1 .9747

2 .9500

3 ,9259

4 ,9024

5 ,8796

Explanation / Answer

All Amounts in $ Net Book Value of Project = $ 19,345,000 - $ 1,750,000 = $ 17,595,000 With a benefit period of 4 years, the uniform annual cost works out to $ 17,595,000 / 4 = 4398750 Since 4,810,137 is closest to this value, hence that is considered as the correct solution.

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