Question

please show all steps, and answer all of the question. The second pictures states how it should be solved. thanks!

1-S. A large engineering company is considering the following three major capital investments (each investment is considered to have zero salvage value at the end of its life) (b) For a MARR of 15%, which investment, if any, would you select? Why? (How do you handle the unequal lives?) InitialEstimated capital annual receipts Estimated annual disbursements Estimated life required Investment 300,000 130,000 62,000 126,000 25,000 12 140,000 120,000 175,000 56,000 Note: Assume equal replacement conditions for this problem.

Answer 1

The problem should be solved by use of Uniform series present worth method , i.e. to P given A ,(P/A,i%,n) ,

Here , Net present worth for investments will be =  Net Annual cash flow(P/A, 15%, n ) - initial cash investment .

Net Annual cash flow = Annual Receipts - Annual Disbursement

Investment	Intial Capital	Annual receipts	Annual Disburement	Life(n)	Net annual cash inflow	(P/A,15%,n)		Net Annual cash flow *(P/A, 15%, n )	Net present worth	Suitability Ranking of project
M	$300,000	$130,000	$62,000	12	$68,000	[(1+i)^n-1]/ [i(1+i)^n]	5.421	$368,602.09	$68,602.09	1
P	$140,000	$175,000	$126,000	6	$49,000		3.784	$185,439.65	$45,439.65	2
S	$120,000	$56,000	$25,000	8	$31,000		4.487	$139,106.97	$19,106.97	3

As project M , has highest Net present worth , this should be selected.