Question

(a) Assuming an infinite planning horizon, which project is a better choice at MARR = 12%\

The present worth for project B1 is $ thousand

The present worth for project B2 is $ thousand

(b) With a 10 year planning horizon, which project is a better choice at MARR = 12%

Consider the two mutually exclusive projects in the table below. Salvage values represent the net proceeds (after tax) from disposal of the assets if they are sold at the end of each year. Both projects B1 and B2 will be available (or can be repeated) with the same costs and salvage values for an indefinite period. Click the icon to view the additional data about the mutually exclusive projects. Click the icon to view the interest factors for discrete compounding when MARR = 12% per year. (a) Assuming an infinite planning horizon, which project is a better choice at MARR = 12%? Use 15 years as the common analysis period. The present wort A More Info - X B1 Salvage Value B2 Salvage Value WN -OS Cash Flow - $28,000 - 2,900 -2,900 -2,900 -2,900 - 2,900 Cash Flow - $14,000 - 1,700 - 1,700 14,000 12,000 9,000 7,000 6,500 6,500 4,500 1,500 - 1,700 4 5

Answer 1

a.

Analysis period = 15 yrs

PW of B1 = -28000 - 2900 * (P/A, 12%,15) - (28000 - 6500) * (P/F, 12%,5) - (28000 - 6500) * (P/F, 12%,10) + 6500 * (P/F, 12%, 15)  

= -28000 - 2900 * 6.810864 - 21500 * 0.567427 - 21500 * 0.321973 + 6500 * 0.182696

= -65686.08

= -65.7 Thousands

PW of B2 = -14000 - 1700 * (P/A, 12%,15) - (14000 - 1500) * [(P/F, 12%,3) + (P/F, 12%, 6) + (P/F, 12%,9) + (P/F, 12%, 12)] + 1500 * (P/F, 12%,15)  

= -14000 - 1700 * 6.810864 - 12500 * [0.711780 + 0.506631 + 0.360610 + 0.256675] + 1500 *0.182696

= -48250.62

= -48.2 thousands

B2 should be selected as Net present cost is less

When the analysis period is 10 yrs

PW of B1 = -28000 - 2900 * (P/A, 12%,10) - (28000 - 6500) * (P/F, 12%,5) + 6500 * (P/F, 12%, 10)  

= -28000 - 2900 * 5.650223 - 21500 * 0.567427 + 6500 * 0.321973

= -54492.50

= -54.5 Thousands

PW of B2 = -14000 - 1700 * (P/A, 12%,10) - (14000 - 1500) * [(P/F, 12%,3) + (P/F, 12%, 6) + (P/F, 12%,9)] + 6500 * (P/F, 12%,10)  

= -14000 - 1700 * 5.650223 - 12500 * [0.711780 + 0.506631 + 0.360610] + 6500 * 0.321973

= -41250.32

= -41.5 thousands

B2 should be selected as Net present cost is less