Question

6. Given the data in the table below for two mutually exclusive alternatives, determine the value "x" for the two alternatives to be equally attractive. Use an interest rate of 8% per year. 20 Initial cost $275 $650 Uniform annual benefit $120 $(x) Salvage value 10% initial cost 20% of initial cost Ufe 6 years

Answer 1

	A	B
Initial cost	275	650
Less:Salvage value	27.5	130
Depreciable value	247.5	520
Annual Depreciation	41.25	86.67
Uniform annual benefit	120	X
Cash Inflows(Benefit)	161.25	$86.67+X
PVAF(8%,6)	4.62288	4.62288
PV of cash inflow	745.4394	4.62288($86.67+X)
PVIF(8%,6)	0.63017	0.63017
PV of salvage value	17.329675	81.9221
PV of total cash inflows	762.769075
NPV	487.769075
Now NPV of A = NPV of B
$487.77 = 4.62288($86,67+X) + $81.9221 - $650
4.62288($86.67+X) =$1,055.85
$400.67 + 4.62288X =$1,055.85
X =$655.18 / 4.62288 =$141.73
Note:The above calculations has been rounded off to two disgits.There might be some approximation errors