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QUESTION

Consider the following EOY cash flows for two mutually exclusive alternatives. (one must be chosen)Alternative AAlternative BCapital investment (TL)400012000Annual expenses (TL)28002300Useful life (ye

Consider the following EOY cash flows for two mutually exclusive alternatives. (one must be chosen)

Alternative AAlternative B

Capital investment (TL)400012000

Annual expenses (TL)

28002300

Useful life (years)36

Market value at the end of29002900

Useful life (TL)

The MARR is 8% per year.

a) Determine which alternative should be selected if the repeatability assumption applies. Use PW in your analysis.

PW (A) =?

PW (B) =?

Which one is preferred?

b) Determine which alternative should be selected if the analysis period is 6 years and the repeatability assumption does not apply. Use the AW method.

AW (A) =?

AW (B) =?

Which one is preferred?

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ANSWER

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*********** ***** = -2800(P/A 8% ** - **** + ******** ** *** ************* * **** * 2900(079383)= *********** the same *** ** ******** after year * *** repeating *** ** same ******* ***** ** ******** ** **** * ********** ** ******* **** ** $891377 x ****** * ******* *** ***** becomes ***************** * ********* for * years ****************** ***** = -2300(P/A ** ** - ***** * 2900(P/F ** *** ************* * ***** * 2900(063017)= ******************** * is preferred since ** has ****** ******** ************** A:AW * ********* 8% ** * **** + ******** 8% *** ************* * **** + ************* -$345883Alternative **** * -12000(A/P 8% ** * **** * ******** ** *** ************** * 2300 * ************* -$450051Alternative A ** ********* since ** *** ****** **

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