Question

Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. a. Which environmental protection equipment alternative should be selected? The firm's MARR is 20% per year. Assume the equipment will be needed indefinitely. Assume repeatability is appropriate for this comparison. b. Assume the study period is shortened to five years. The market value of Alternative B after five years is estimated to be $14,000. Which alternative would you recommend? Assume repeatability is appropriate for this comparison.

i want a hand written solution if possible. thanks!

Answer 1

a. EUAC of Alternative A = 19000 * (A/P, 20%,5) + 5750 - 1100 * (A/F,20%,5)

= 19000 * 0.3344 + 5750 - 1100 * 0.1344

= 11955.76

EUAC of alternative B = 34000 * (A/P, 20%,10) + 3750 - 4200 * (A/F,20%,10)

= 34000 * 0.2385 + 3750 - 4200 * 0.0385

= 11697.30

As EUAC of Alternative B is less,it should be selected

b.

When study period is 5 yrs

EUAC of Alternative A = 19000 * (A/P, 20%,5) + 5750 - 1100 * (A/F,20%,5)

= 19000 * 0.3344 + 5750 - 1100 * 0.1344

= 11955.76

EUAC of alternative B = 34000 * (A/P, 20%,5) + 3750 - 14000 * (A/F,20%,5)

= 34000 * 0.3344 + 3750 - 14000 *0.1344

= 13238

As the EUAC of Alternative A is less, it should be selected