AEC = -P(A/P,i%,n)+Am+F(A/F,i%,n)
where, P is the initial cost, Am is the annual benefit
and F is the salvage value
thus the required AEC for Expansion A is
= -148650000(A/P,9%,3)+1090000 +10725000(A/F,9%,3)
= -148650000(.3951)+1090000 +10725000(.3051)
= $-54369417.5
Hence, the annual equivalent cost for Expansion A is $-54369417.5
Similarly, the required AEC for Expansion B is
= -63750000(A/P,9%,6)+2860000 +12380000(A/F,9%,6)
= -63750000(.2229)+2860000 +12380000(.1329)
= $-9704573
Hence, the annual equivalent cost for Expansion B is $-9704573
Hence, Expansion B will be selected as its Equivalence Uniform annual cost is less in comparison to Expansion A
A telecommunications firm is considering a product expansion of a popular cell phone. Two alternatives for...