Homework Answers
The life of the plans given in this question is not equal. Hence, we have to use the common multiple method to convert the unequal life into equal life. The LCM of 2 years of Plan A and 3 years of Plan B is 6 years. Therefore, the common life will be 6 years. The Plan B is to be repeated two times to make its life equal to common life.
Plan B
Initial cost = 8,900
Annual benefits = 2,000
Salvage value = 8,900
MARR = 8%
NPW = -8,900 - (8,900 - 8,900) (P/F, 8%, 3) + 2,000 (P/A, 8%, 6) + 8,900 (P/F, 8%, 6)
NPW = -8,900 + 0 + 2,000 (4.62288) + 8,900 (0.63017)
NPW = 5,954.27
The closest answer will be $5,954.78
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