Question

given the following data.

use present worth analysis to find the best alternative, A, B, or C.

Use an analysis period of 12 years and 15% interest.

A B C Initial cost $10,000 15,000 $12,000

Annual Benefit 6,000 10,000 5,000

Salvage benefit 1,000 -2,000 3,000

Useful life 2 years 3 years 4 years

* Use an analysis period of 12 years and 15% interest.

solve using both present worth analysis and annual worth analysis

Answer 1

The period of analysis is 12 years and the interest rate is 15%. Calculating the present worth of the three alternatives.

AWa = 1,701.82(A/P,15%,12) = $ 313.95

Calculating the present worth of B

AWb = 15,472.57(A/P,15%,12) = $ 2,854.39

Now calculating the present worth of C

Now calculating the annual worth

AWc = 7,575.92(A/P,15%,12) = 7,575.92 ×0.188448 = $ 1,397.61

On the basis of Present worth as well as Annual worth analysis the alternative B must be selected

I have solved it using excel too got the same values refer the screenshot of excel.

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