Question

1. Three (3) mutually exclusive alternatives are being considered for the production equipment at a toilet tissue paper factory. The estimated cash flows for each alternative are given here. (All cash flows are in thousands.).
   1. Use the EUAW (Equivalent Uniform Annual Worth) method to determine which equipment alternative, if any should be selected? The firm’s MARR is 18%. Cash flow diagrams must be included.

	A	B	C
Capital investment	2000	4200	7000
Annual revenues	3200	6000	8000
Annual costs	2100	4000	5100
Salvage value	100	420	600
Useful life (years)	5	10	10

Answer 1

		Project A	Project B	Project C
1	Capital Investment	$                                                 2,000	$                                             4,200	$                       7,000
2	Annual Revenue	$                                                 3,200	$                                             6,000	$                       8,000
3	Annual Costs	$                                                 2,100	$                                             4,000	$                       5,100
4	Annual Net Revenue	$                                                 1,100	$                                             2,000	$                       2,900
5	Salvage Value	$                                                    100	$                                                420	$                          600
6	Useful life	$                                                        5	$                                                  10	$                            10
7	Present Value of Annuity Factor @18%	3.12717	4.49409	4.49409
8	Annual equivalent Investment(1/7)	$                                                    640	$                                                935	$                       1,558
9	PV of Salvage value	$                                                      44	$                                                  80	$                          115
10	Annual equivalent salvage value(9/7)	$                                                      14	$                                                  18	$                            26
11	EUAW(4-8+10)	$                                                    474	$                                             1,083	$                       1,368
	Note:All the figures are rounded off to nearest $