Question

Three mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given next. The MARR is 20% per year. At the conclusion of the useful life, the investment will be sold. B Investment cost Annual expenses Annual revenues Market value Useful life $28,000 $15,000 $23,000 $6,000 10 years 10 years 10 years 26.4% $55,000 $40,000 $22,000 $32,000 $10,000 $13,000 $28,000 $8,000 24.7% 22.4% IRR A decision-maker can select one of these alternatives or decide to select none of them. Make a recommendation using the PW, AW, and FW methods.

Answer 1

life of all alternatives is 10 years MARR= 20% Alternative A Investoents 28.000 , Salvage Value: 6,000 Annual expenses = 15,000 1 Het Annual Revenue fonnal Reversus = 23,000 = 23,000 - 15,000 = 8,000 BW= -28,000+ 8000 (PIA.204,00) + 6,000 ( PIF, 20810) P.W2 -28,000 +8,000 (4.19247) + boop ( 0.16157 i = 16506.82 An= P.W (A/P, 20% (0) Are 6508.82(0.23852) 1552.48] F.W. = -28,000 ffle 204, 10) +8800 CFA, 204, 10) + 6000 FW= -28,000 (6.19174) + 8000 (25.95869 ) + bodo 40,300.72 Alternative- Livestiment: 55 000; Satrage Value: 8.000 Annual Expenses: 13,000 Net Annual Revenues Aanual Revenues 28,000 - =28,000 - 13,00D 15,000 P.Wz -55,000 + 1500DCPIA, 2010) + Soon CPIF, 2007.10 PW= 55,000 + 15,000 (4. 19247) +8000 (0.16157 -19179.131 SBLBCT AW= P.W (Ale, 20%, 10) AN: 9179.13( 0.23852) 2189.41 SELECT fW= -55,000 (Fre, 20%, 10) +15,000 (FIA 20%10)+8,000 FW = -5590D(6.14174) +15,000 25.95816) + BUOD = 5683+.5 SBLBOT Alternative-C Investment = 40000; Sarrage Value: 10.000 Annual expenses 22,000 7 Net Annual Revenues Annual Revenues, 32,000 = 32,000 22,000 = 10,000 P.W2 ~ 40,000 + 10,000 (814, 20% 10)+19 700 (P15 20% 10) W2 - 40,00 + 100 (4.14244) +100D (0.16151) - 3 539.8 Ana PW CAP, 20%, 10) AN-3539.8(0.238 52 -1844.24 Fwa - 40000 (411,20% 10 + 10,000 (F1A, 20%10) + 10,000 Pusz 40 Doo (b.19174) + DVD ( 25.95865) +10,000 = 21,917.2 SELECT ALTERNATIVE-B