Question

Please dont use excel,show me the formula used

7. Compare the alternatives shown below on the basis of a future worth analysis, using an interest rate of 8% per year. Р Fir

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Since the life of the projects are unequal, then LCM method will be used to make lives equal. As per the LCM method, the lives of each project will be considered to be 6 years.

R = 8%

Future value of alternative P = - Future worth of the initial investments - Future worth of the annual operating cost + future worth of the salvage value

Future value of alternative P = (-23000*1.08^6 - 23000*1.08^3) - 4000*(1.08^6 - 1)/.08 + (3000*1.08^3 + 3000)

Future value of alternative P = -$88036.1

Future value of alternative Q = - Future worth of the initial investments - Future worth of the annual operating cost + future worth of the salvage value

Future value of alternative Q = -30000*1.08^6 - 2500*(1.08^6 -1)/.08 + 1000

Future value of alternative Q = -$64946.1

Since the future value is cost effective more of alternative Q than that of alternative P, then alternative Q should be selected.

Add a comment
Know the answer?
Add Answer to:
Please dont use excel,show me the formula used 7. Compare the alternatives shown below on the...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT