Question

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5- The Larkspur Furniture Company needs a new grinder. 37 Compute the present worth for these mutually exclusive alternatives and identify which you would recommend given i = 6% per year. Larkspur uses a 10-year planning horizon. Alternative B A Initial cost $4500 $5500 Annual costs $300 $400 Salvage value $500 $0 Life 5 years 10 years

Answer 1

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Alternateve A imitial cust - $4500 Annual cost = $300 Salvage value = $500 Life - 5 years Cumulative value at syears with 6% = 0.7473 New present worth for A for 10 year lidentical equipment replace at year 5 ) 4500 + ( 500 - 4500) (PIF, 6%,5) - 300 (PIA,6%,10) + 500 (PIA, 6% , lo 4500 - 4000 1.7473 ) - 300 (7.360 )+500(-5584) - $ 9418 2 Alternative B for 10 years NPW = 5500 400 (PIA ,6%,10) = 5500 - 400 (7.360 ) =$84 44 Answey Alternative B is the better of the two. because of lower present worth.