Question

Each alternative has a 10-year useful life and no salvage value. Construct a choice table for interest rates from 0% to 30% in increments of 5%, if doing nothing is allowed.

	A	B	C
Initial cost	$1,500	$1,000	$2,035
Annual benefit for first 5 years	$250	$250	$650
Annual benefit for subsequent 5 years	$450	$250	$145

               This is Engineering Economics

Answer 1

First we will enter the cashflows in the excel sheet for the 10 years and calculate the IRR by using the function IRR, the result will appear like this.

years	a	b	c
0	-1500	-1000	-2035
1	250	250	650
2	250	250	650
3	250	250	650
4	250	250	650
5	250	250	650
6	450	250	145
7	450	250	145
8	450	250	145
9	450	250	145
10	450	250	145
IRR	16%	21%	22%

then, we will use the rates r%, to find the net present value of each alternative.

that is, the cashflow at time 0 + npv of the remaining cashflows discounted at r %

this is repeated for all the rates where r = 0%,5%,10%,15%,20%,25%,30%

we will get the following choice table

i%	a	b
0	₹ 2,000.00	₹ 1,500.00
5	₹ 1,108.89	₹ 930.43
10	₹ 506.90	₹ 536.14
15	₹ 88.01	₹ 254.69
20	₹ -211.51	₹ 48.12
25	₹ -431.13	₹ -107.37
30	₹ -595.92	₹ -227.12

the formulas that i have used is clearly shown in the following image: