Question

1.) Consider the following two mutually exclusive alternatives.

A B

Cost Rs. 4,000 Rs. 6,000

Uniform annual benefit Rs. 640 Rs. 960

Useful life (years) 20 20

Using a 15% interest rate, determine which alternative should be selected

based on the future worth method of compa rison.

2.) Due to increasing awareness of customers, two different television
manufacturing companies started a marketing war. The details of
advertisements of the companies are as follows:
Brand X Brand Y
Selling price of a TV set Rs. 15,000 Rs. 10,000
Amount returned to buyer after 5 years Rs. 8,000 –
Select the most economical brand from the customer’s point of view using
the future worth method of comparison, assuming an interest rate of 15%,
compounded annually.

Answer 1

Answer 1:
		A	B
	Cost	4,000.00	6,000.00
	FV of cost (a)	4,000 * (1.15)^20	6,000 * (1.15)^20
		65,466.15	98,199.22
	Uniform annual benefit	640.00	960.00
	Useful life	20 years	20 years
	FV of annual benefit (b)	65,563.89	98,345.84
	Future worth (b-a)	97.74	146.61
		REJECT	SELECT
	Since, future worth is higher in B, So, we should select B.
Year	FV factor	Uniform annual benefit	FV of annual benefit
		A	B	A	B
1	14.2318	640.00	960.00	9,108.33	13,662.50
2	12.3755	640.00	960.00	7,920.29	11,880.44
3	10.7613	640.00	960.00	6,887.21	10,330.81
4	9.3576	640.00	960.00	5,988.88	8,983.32
5	8.1371	640.00	960.00	5,207.72	7,811.58
6	7.0757	640.00	960.00	4,528.45	6,792.68
7	6.1528	640.00	960.00	3,937.78	5,906.68
8	5.3503	640.00	960.00	3,424.16	5,136.24
9	4.6524	640.00	960.00	2,977.53	4,466.30
10	4.0456	640.00	960.00	2,589.16	3,883.74
11	3.5179	640.00	960.00	2,251.44	3,377.16
12	3.0590	640.00	960.00	1,957.77	2,936.66
13	2.6600	640.00	960.00	1,702.41	2,553.62
14	2.3131	640.00	960.00	1,480.36	2,220.54
15	2.0114	640.00	960.00	1,287.27	1,930.90
16	1.7490	640.00	960.00	1,119.36	1,679.05
17	1.5209	640.00	960.00	973.36	1,460.04
18	1.3225	640.00	960.00	846.40	1,269.60
19	1.1500	640.00	960.00	736.00	1,104.00
20	1.0000	640.00	960.00	640.00	960.00
				65,563.89	98,345.84
Answer 2:	Brand X	Brand Y
	Selling price of TV set	15,000.00	10,000.00
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