Question

Three mutually exclusive​ earth-moving pieces of equipment are being considered for several large building projects in India over the next five years. The estimated cash flows for each alternative are given below. The construction​ company's MARR is 18% per year. Which of the three​ alternatives, if​ any, should be​ adopted? Assume repeatability is appropriate for this comparison.

	Caterpillar	Deere	Case
Capital investment	​$22,000	​$26,400	​$17,500
Net annual revenue	​$6,500	​$9,000	​$5,200
Salvage value	​$4,500	​$5,000	​$3,750
Useful life	4 years	3 years	5 years

The AW of the Caterpillar is $____.(Round to the nearest​ dollar.)

Answer 1

interest rate	18.00%
Year	Caterpillar	Deere	Case	PV fatctor	Caterpillar	Deere	Case
0	(22,000)	(26,400)	(17,500)	1.000	(22,000)	(26,400)	(17,500)
1	6,500	9,000	5,200	0.847	5,508	7,627	4,407
2	6,500	9,000	5,200	0.718	4,668	6,464	3,735
3	6,500	9,000	5,200	0.609	3,956	5,478	3,165
3	-	5,000		0.609	-	3,043	-
4	6,500		5,200	0.516	3,353	-	2,682
4	4,500			0.516	2,321	-	-
5	-		5,200	0.437	-	-	2,273
5			3,750	0.437	-	-	1,639
				NPV	(2,194)	(3,788)	400
Annual worth =	PV*((i*(1+i)^n)/(((1+i)^n)-1))
Annual worth =	=-2194*((18%*(1+18%)^4)/(((1+18%)^4)-1))
Annual worth =	(816)
Since NPVof only CASE is positivie, the same should be accepted. Others are giving engative NPV @ 18% which menas
return generated is less than 18% i.e. required rate of return and hence should be rejected