A company must decide a single alternative, and if anv using Annualized Cost. Th
ID: 2792995 • Letter: A
Question
A company must decide a single alternative, and if anv using Annualized Cost. The pr Firs de between 3 alternatitw any mue and if any project makes sm.months t it will determine If each makes sense as any project alternatives, it will compare the appropriate projects last 360 months. I-6% per year. Project A: Initial Cost 400,000 Revenue ie month. Salvage Value of Equipment is 2 r month Costs are constant at 100 per 0,000 nt at 1000 per Project B: Initial Cost 500,000. Revenue month. Costs can be considered (negligibi s 200. The rev Project C: Initial Cost 400,000. Revenue is constant at 1000 per month. Costs start at 50 per month at t = 1 and increase each month by 20, SalvaR Determine if each choice makes sense and compare any sensible single alternative choices using Annualized Worth. (Optional Hint Use the Gradient to Uniform Function when useful.)Explanation / Answer
Interest Rate =6% or 0.50% per month
Total Project Duration = 360 months
AW for Project A = -400,000/{(1-(1+0.005)-360)/0.005} + 20000/{((1+0.005)360-1)/0.005}
= -2398.20 + 19.91
= -2378.29
AW of Project A =$ -2378.29 + (1000-100) =$ -1478.29
AW for Cap Recovery of Project B = -500,000/{(1-(1+0.005)-360)/0.005} + 4000/{((1+0.005)360-1)/0.005}
= -2997.75 + 3.98
= -2993.77
AW for Revenue & Costs of Project B = 1745622.65/{(1-(1+0.005)-360)/0.005} =$10465.89
AW of Project B =$ -2993.77 + 10465.89 =$7472.12
AW for Cap Recovery of Project C = -400,000/{(1-(1+0.005)-360)/0.005} + 20000/{((1+0.005)360-1)/0.005}
= -2398.20 + 19.91
= -2378.29
AW for Revenue & Costs of Project C = 1000 - 436405.66/{(1-(1+0.005)-360)/0.005} =$1000 - 2616.47 =$ -1616.47
AW of Project C =$ -2378.29 -1616.47 =$-3994.76
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