Question

2. Analysis period different from useful lives (5 Points) Two pumps are being considered for purchase for a service life of 10 years. Interest rate is 5% Pump 2 $60,000 $75,000 $12,000 11 years $15,000 Pump 1 Alternatives Initial Cost Estimated salvage value at end of useful life Useful Life Estimated market value, end of 10-year $10,000 6 years $12,000 (1) Develop the cash flow diagram for both alts. (1 point) (2) Apply the present worth technique, which pump should be considered? (4 points)

Answer 1

Answer The Bing considered to purchase for a service life to years Initiat cost pumpl = 60,000 Value at and of useful (pumps) = 10,000 Usefull life (pumpi)=6 Value End of lo- year (pumpi) = 12000 Pump ! $600 (Initine Travelonen) @ 12 000 Cash flow Upon projet completion

Pump-2 175000 (Initial Investment) 15000 cash flow upon project completion Initial cost (purp 2) = 75.000 Value end of useful pump) = 12000 sa useful life - Il year End of lo year = 15000 Need to be used for = 10 year service use market Vebere :- 10 year cash flow ②. Prest worth NPV 2 |- Initial investment trl

Pump-I . NpU= 12,000 %oooo 52,633.04 pump Initial . Enda Cost = 75000 loyear = 15000 NPV = /15.0007. ( 105 ) 5-65,791.30 Pumps should be purched.