Calculate the present worth of the Alternative "A". Assume the interest rate is 2% per year,...
Calculate the present worth of the Alternative "A". Assume the interest rate is 2% per year, compounded annually.
| Alternative A | |
| Initial cost | $1,000,000 |
| Annual maintenance cost | $50,000 |
| Overhaul cost every 4 years | $200,000 |
| Salvage value | $400,000 |
| Useful life | 40 years |
Homework Answers
NPW of alternative A = -1000000 - 50000 * (P/A,2%,40) - 200000 * ((P/F,2%,4) + (P/F,2%,8) +(P/F,2%,12) + (P/F,2%,16) + (P/F,2%,20) + (P/F,2%,24) + (P/F,2%,28) + (P/F,2%,32)+ (P/F,2%,36)) + 400000 * (P/F,2%,40)
= -1000000 - 50000*27.355479 - 200000 * (0.923845 +0.853490 +0.788493 +0.728446 + 0.672971 + 0.621721+ 0.574375 + 0.530633+ 0.490223) + 400000*0.452890
= -3423457.35
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