3. Compare the alternatives shown below on the basis of their Annual Worth, using an interest...

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3. Compare the alternatives shown below on the basis of their Annual Worth, using an interest rate of 12% per year. Alternati

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Answer 1

Answer #1

(A/F, I%, infinite) = 0

(A/P, I%, infinite) = i

EUAW of alternative 1 = -160000 * (A/P, 12%,infinite) - 15000 + 1000000 * (A/F, 12%, infinite)

= -160000 * 0.12 - 15000 + 1000000 * 0

= -34200

EUAW of alternative 2 = -25000 * (A/P, 12%,7) - 3000 + 4000 * (A/F, 12%,7)

= -25000 * 0.219118 - 3000 + 4000 * 0.099118

= -8081.47

As the annual cost of alternative 2 is less, it should be selected

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Answer 2

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