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Compare the alternatives C and D on the basis of a present worth analysis using an...

Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 7% per year and using a study period of 10 years. What would be the resulted present worth of the alternative to be selected.

Alternative C D
First Cost $-5684 $-4060
AOC, per Year $-1015 $-812
Annual Revenue, per Year $2436 $1827
Salvage Value $812 $609
Life, Years 6 4

Solutions

Expert Solution

Solution :-

Alternative C
Year Cashflow PVF@7% PV
0 -5684 1 -5684
1 1421 0.934579 1328.037
2 1421 0.873439 1241.156
3 1421 0.816298 1159.959
4 1421 0.762895 1084.074
5 1421 0.712986 1013.153
6 2233 0.666342 1487.942
1630.323
Cashflow of year 1 to 5 (2436 - 1015)
= 1421
Cashflow of year 6 (1421 + 812)
2233
Alternative D
Year Cashflow PVF@7% PV
0 -4060 1 -4060
1 1015 0.934579 948.5981
2 1015 0.873439 886.5403
3 1015 0.816298 828.5423
4 1624 0.762895 1238.942
-157.377
Cashflow of year 1 to 3 (1827 - 812)
= 1015
Cashflow of year 6 (1015 + 609)
1624

Alternative C is to be selected as the present worth of option D is negative And the present value of Alternative C is 1630.323

Rahul Sunny answered 2 years ago
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