Question

Please show work, don't just put it in excel: A firm will choose one of two projects. Both projects have useful lives of 10 years. Project A has an initial cost of $10,000, annual fuel cost of $500 per year, maintenance cost of $100 at the end of year 1 that increases by $25 per year thereafter, a salvage value of $1,000, and annual benefits of $2,300. Project B has an initial cost of $13,000, annual fuel cost of $400 per year, maintenance cost of $100 at the end of year 1 that increases by 10% per year thereafter, a salvage value of $2,000, and annual benefits of $2,500. Evaluate the present worth using an interest rate of 8 percent, compounded annually.

1.What is the present worth of project A ($)?

2.What is the present worth of the annual benefits for Project B ($)?

3.What is the present worth of Project B ($)?

4.Suppose that Project A has a present worth of $1,294 and that project B has a present worth of $1,105 (these are not the correct answers to prior parts of the problem), which project is preferred?

5.Suppose that the interest rate is 6.7 percent. At this interest rate, what is: 1. the net present value of Project A ($)? 2. the net present value of Project B ($)? 3. from an engineering perspective, is there any significant difference in the present value of these two projects (y/n)?

Answer 1