Homework Answers
Find the PW of both methods (repeat the cash flows for A twice for LCM = 12)
PW(A) = -8000 – 8000(P/F, 10%, 6) – 700(P/A, 10%, 12) + 900(P/F, 10%, 6) + 900(P/F, 10%, 12)
= -8000 – 8000*0.56447 - 700*6.8137 + 900*0.56447 + 900*0.31863
= - $16490.56
PW(B) = -10000 – 800(P/A, 10%, 12) + 700(P/F, 10%, 12)
= -10000 – 800*6.8137 + 700*0.31863
= - $15227.91
Since PW(B) > PW(A) select alternative B
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