1. An engineer must choose between two technically equivalent alternatives, A an
ID: 3223102 • Letter: 1
Question
1. An engineer must choose between two technically equivalent alternatives, A and B. Based upon the data in the table below and an interest rate of 9%, which alternative should be selected?
A
B
First Cost
$3,000
$6,000
Annual Maintenance
$500
$300
End of Useful Life Salvage Value
$700
$1,000
Useful Life
5 years
15 years
2. a. Choose A; we want to maximize the costs
b. Choose B; we want to minimize the costs
c. Choose A; we want to minimize the costs
d. Choose B; we want to maximize the costs
Choose the right answer and show solution( do not use excel)
A
B
First Cost
$3,000
$6,000
Annual Maintenance
$500
$300
End of Useful Life Salvage Value
$700
$1,000
Useful Life
5 years
15 years
Explanation / Answer
Solution:- option b. Choose B; we want to minimize the costs .
Explanation:-
EUAC = 6,000(A/P, 9%, 15) + 300 " 1,000(A/F, 9%, 15)=6,000(0.1241 )+ 300 " 1,000(0.0341) = $1,010.50
To minimize EUAC, select alternative B
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