Consider the mutually exclusive alternatives given in the table below. MARR is 5 % per year....

Consider the mutually exclusive alternatives given in the table below. MARR is 5 % per year. Assuming repeatability, what is the equivalent annual worth of the most profitable alternative? (Do not enter the dollar sign $ with your answer.)

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X Y Z

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Capital investment $50,000 $25,000 $40,000

Annual savings $15,000 $8,000 $12,000

Useful life (years) 10 15 20

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Expert Solution

Alternatives	Year	Annual Savings	PV@ 5%	Disc. Savings

X	1 to 10	15,000	7.7217	1,15,825.50
		Disc. Cash inflows =		1,15,825.50
		Initial investment =		50,000.00
			NPV =	65,825.50
		EAW =	NPV/PVAF = 65,826/7.7217
		EAW =		8,525.00
Y	1 to 15	8,000	10.3796	83036.8
		Disc. Cash inflows =		83036.8
		Initial investment =		25,000
			NPV =	58,037
		EAW =	NPV/PVAF = 58,037/10.3796
		EAW =		5,591
Z	1 to 20	12,000	12.4622	149546.4
		Disc. Cash inflows =		149546.4
		Initial investment =		40,000
			NPV =	1,09,546
		EAW =	NPV/PVAF = 1,09,546/12.4622
		EAW =		8,790


Since Equivalent annual worth(EAW) of alternative Z is higher, it is most profitable

jeff jeffy answered 1 year ago

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