Question

In: Economics

Given the following independent projects, all of which can be considered to be viable for only...

Given the following independent projects, all of which can be considered to be viable for only 10 years. If the company's MARR is 15% per year, determine which should be selected on the basis of a present worth analysis. Financial Values are in $1,000 units.

Projects	A	B	C	D
First Cost, $	-1200	-2000	-5000	-7000
Annual net Income, $/Year	300	400	1100	1300
Salvage Value	5	6	8	9

Group of answer choices

A.) B and C

B.) A, B, and C

C.) A and C

D.) A and B

Expert Solution

MARR = 15%

Life of Alternatives = 10 years

All the values are in 1,000 units

Projet A

Initial Cost = -1200

Annual Income = 300 per year

Salvage Value = 5

PW = -1,200 + 300 (P/A, 15%, 10) + 5 (P/F, 15%, 10)

PW = -1,200 + 300 (5.018768) + 5 (0.247184) = 306.86

Projet B

Initial Cost = -2000

Annual Income = 400 per year

Salvage Value = 6

PW = -200 + 400 (P/A, 15%, 10) + 6 (P/F, 15%, 10)

PW = -2,000 + 400 (5.018768) + 6 (0.247184) = 8.99

Projet C

Initial Cost = -5000

Annual Income = 1100 per year

Salvage Value = 8

PW = -5000 + 1100 (P/A, 15%, 10) + 8 (P/F, 15%, 10)

PW = -5000 + 1100 (5.018768) + 8 (0.247184) = 522.62

Projet D

Initial Cost = -7000

Annual Income = 1300 per year

Salvage Value = 9

PW = -7000 + 1300 (P/A, 15%, 10) + 9 (P/F, 15%, 10)

PW = -7,000 + 1300 (5.018768) + 9 (0.247184) = -473.37

Answer - B) A, B and C

The alternative A, B and C can se selected as the PW is positive. The alternative D is having a negative PW, so it is to be rejected.

Rahul Sunny answered 2 years ago

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