Question

Guy is considering buying a new lawnmower.  He has a choice between a DAT mower and a Beast mower. Guy has a MARR of 10%.  The salvage value of each mower at the end of its service life is zero.

	DAT mower	Beast mower
First Cost	$450	$350
Life	10 Years	10 Years
Annual Gas Cost	$80	$100
Annual Maintenance Cost	$30	$40

1. Using the information above, determine which alternative is preferable.  Use the Present Worthcomparison.
2. Instead of using the present worth comparison in part (a), use the Annual Worth comparison method to justify your selection.

Answer 1

a) PW of DAT mower = 450 + (80 + 30) (P/A, 10%, 10)

                                   = 450 + 110(6.145)

                                   = 450 + 675.95

                                   = $1,125.95

PW of Beast mower = 350 + (100 + 40) (P/A, 10%, 10)

                                   = 350 + 140(6.145)

                                   = 350 + 860.3

                                   = $1,210.3

Since the present worth of DAT mower is lower than Beast of mower, therefore, alternative DAT mower is preferrable.

a) AW of DAT mower = 450(A/P, 10%, 10) + 110

                                   = 450(0.1627) + 110

                                   = 73.22 + 110

                                   = $183.22

PW of Beast mower = 350(A/P, 10%, 10) + 110

                                   = 350(0.1627) + 140

                                   = 56.95 + 140

                                   = $196.95

Since the annual worth of DAT mower is lower than Beast of mower, therefore, alternative DAT mower is preferrable.