MARR=10% Alt A Alt B Initial Cost ($1,500) ($1,200) Annual Rev $1,200 $1,500 Annual Cost ($250)...
| MARR=10% | Alt A | Alt B |
| Initial Cost | ($1,500) | ($1,200) |
| Annual Rev | $1,200 | $1,500 |
| Annual Cost | ($250) | ($400) |
| Salvage Val | $400 | $ 100.00 |
| Useful Life | 12 | 9 |
| AW |
find the annual worth of project A and B. Use repeatability assumption
Homework Answers
|
A |
B |
|
|
Initial Investment |
($1,500) |
($1,200) |
|
Annual Revenue |
$1,200 |
$1,500 |
|
Annual Cost |
($250) |
($400) |
|
Salvage Value |
$400 |
$100 |
|
Useful Life |
12 years |
9 years |
MARR = 10%
Find the AW of both the alternatives.
Both the alternatives have unequal lives. We have to convert the unequal lives into equal life by using the repeatability assumption. Calculate the LCM of 12 years of A and 9 years of B. The LCM is 36 years. The common life will be 36 years for both the alternatives.
Therefore, the alternative A is to be repeated 3 times to make it equal to 36 years.
Similarly, the alternative B is to be repeated 4 times to make it equal to 36 years.
Since the life is not equal, we need to calculate the PW and then we can calculate the Annual Worth.
Initial Cost = 1500
Annual Revenue = 1200
Annual cost = 250
Net Annual Revenue = 1200 – 250 = 950
Salvage Value = 400
Step 1 Calculate PW
PW = -1500 – 1500 (P/F, 10%, 12) – 1500 (P/F, 10%, 24) + 950 (P/A, 10%, 36) + 400 (P/F, 10%, 12) + 400 (P/F, 10%, 24) + 400 (P/F, 10%, 36)
PW = -1500 – 1500 (0.31863) – 1500 (0.10153) + 950 (9.67651) + 400 (0.31863) + 400 (0.10153) + 400 (0.03235) = 7243
Step 2 Calculate AW
AW = PW (A/P, 10%, 36)
AW = 7243 (0.10334) = 748.5 or 749
Alternative B
Initial Cost = 1200
Annual Revenue = 1500
Annual cost = 400
Net Annual Revenue = 1500 – 400 = 1100
Salvage Value = 100
Step 1 Calculate PW
PW = -1200 – 1200 (P/F, 10%, 9) – 1200 (P/F, 10%, 18) – 1200 (P/F, 10%, 27) + 1100 (P/A, 10%, 36) + 100 (P/F, 10%, 9) + 100 (P/F, 10%, 18) + 100 (P/F, 10%, 27) + 100 (P/F, 10%, 36)
PW = -1200 – 1200 (0.42410) – 1200 (0.17986) – 1200 (0.07627) + 1100 (9.67651) + 100 (0.42410) + 100 (0.17986) + 100 (0.07627) + 100 (0.03235) = 8699
Step 2 Calculate AW
AW = PW (A/P, 10%, 36)
AW = 8699 (0.10334) = 899
Annual Worth of Alternative A 743
Annual Worth of Alternative B 899
Add Answer to:
MARR=10%
Alt A
Alt B
Initial
Cost
($1,500)
($1,200)
Annual
Rev
$1,200
$1,500
Annual
Cost
($250)...
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