Question

Given 2 alternatives: A B First Cost 4,000 6,000 500 1,000 2,200 Annual Cost Annual Bene fit 2,000 Life 5 10 1,000 Salvage 3,000 If i 10%, find the better alternative computing NPW of both alternatives Assume alternative A is replaced at the end of its useful life. Solution: gr pW

The formula is NPW but I'm a little confused on how it is implemented.
Write step by step, please.

Don't use Excell please

Answer 1

i = 10%

Analysis will be carried out for 10 yrs (LCM of 5 & 10)

NPW of A = -4000 + (2000 - 1000)*(P/A, 10%,10) - (4000 - 3000) * (P/F, 10%,5) + 3000 * (P/F, 10%,10)

= -4000 + 1000*(P/A, 10%,10) - 1000 * (P/F, 10%,5) + 3000 * (P/F, 10%,10)

= -4000 + 1000*6.144567 - 1000 * 0.620921 + 3000 * 0.385543

= 2680.28

NPW of B = -6000 + (2200 - 500)*(P/A, 10%,10) + 1000 * (P/F, 10%,10)

= -6000 + 1700*(P/A, 10%,10) + 1000 * (P/F, 10%,10)

= -6000 + 1700*6.144567 + 1000 * 0.385543

= 4831.31

As NPW of B, it should be selected