Question
In: Economics
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 agoRelated Solutions
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