Question

9. You are asked to decide between two projects based on annual equivalent worth. A -$10,000 -$12,000 $6,000 $7,000 $5,000 $8,000 $4,000 12 Click the icon to view the interest factors for discrete compounding when i 10% per year. (a) What assumptions do you need to make in comparing these mutually exclusive revenue projects? Select all that apply. A. The two projects will be available in the future at the increasing cost. B. The salvage values of two projects are the same. c. The current projects are expected to continue for an indefinite period. D. These two projects will be available in the future without significant changes in revenue expectations (b) Based on the assumption(s) in (a), which project should you choose at i 10%? The annual equivalent worth of project A is $ (Round to the nearest dollar.) The annual equivalent worth of project B is $ (Round to the nearest dollar.) Which project should be selected? Choose the correct choice below Project B Project A 12: More Info

engineering econmy

Answer 1

a)

The correct answer is option C & D

Explanation : - Mutually exclusive revenue projects are compared by assuming that the projects revenues repeat indefinitely and the length of service of the projects is assumed to be indefinitely long.

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b)

Annual equivalent worth = Net present worth x Capital recovery factor

Net present worth of project A = - $ 10,000 + $ 6000 ( P/F , 10% , 1 year) + $ 5000 ( P/F , 10% , 2 year) + $ 4000 ( P/F , 10% , 3 year)

The net present worth of project A = - $ 10,000 + $ 6000 x 0.9091 + $ 5000 x 0.8264 + $ 4000 x 0.7513

The net present worth of project A = $ 2,591.80

Annual equivalent worth Project A = $ 2,591.80 x ( A/P , 10% , 3 years)

Where ( A/P , 10% , 3 years) = Capital recovery factor

Annual equivalent worth Project A = $ 2,591.80 x 0.4021

Annual equivalent worth of Project A is $\approx$ $ 1,042

Net present worth of project B = - $ 12,000 + $ 7000 ( P/F , 10% , 1 year) + $ 8000 ( P/F , 10% , 2 year)

Net present worth of project B = - $ 12,000 + $ 7000 x 0.9091+ $ 8000 x 0.8264

Net present worth of project B = $ 974.90

Annual equivalent worth Project B = $ 974.90 x ( A/P , 10% , 2 years)

( A/P , 10% , 2 years) = Capital recovery factor

Annual equivalent worth Project B = $ 974.90 x 0.5762

Annual equivalent worth of Project B is $\approx$ $ 562

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Annual equivalent worth of Project A is = $ 1,042

Annual equivalent worth of Project B is = $ 562

Project A should be selected because it has higher annual equivalent worth than project B.