# You have two mutually exclusive alternatives as detailed below. If your MARR is 20% which option would you choose?

You have two mutually exclusive alternatives as detailed below. If your MARR is 20% which option would you choose

The present worth of Alternative A

Net cash flow of Alternative A = \$ 10,000 – \$ 1,000

Net cash flow of Alternative A = \$ 9,000

Terminal cash flow = \$ 9,000 + salvage value

Terminal cash flow = \$ 14,000

PW = – \$ 50,000 + \$ 9,000 / 1.201 + \$ 9,000 / 1.202 + \$ 9,000 / 1.203+ \$ 9,000 / 1.204+ \$ 9,000 / 1.205+ \$ 9,000 / 1.206+ \$ 9,000 / 1.207+ \$ 9,000 / 1.208+ \$ 9,000 / 1.209+ \$ 14,000 / 1.2010

PW = – \$ 11,460.22

To find the annual worth of Alternative A

EUAW = EUAB – EUAC

EUAB = \$ 9,000 + \$ 5000 ( A/F , 20% , 10 years )

EUAB = \$ 9000 + \$ 5000 X 0.038523

EUAB = \$ 9,192.62

EUAC = \$ 50,000 ( A/P , 20% , 10 years ) + \$ 1,000

EUAC = \$ 50,000 x 0.238523 + \$ 1,000

EUAC = \$ 12,926.20

EUAW = \$ 9,192.62 – \$ 12,926.20

EUAW = – \$ 3,733.58

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The present worth of Alternative B

PW = – \$ 20,000 + \$ 5000 / 1.201 + \$ 5000 / 1.20 2 +\$ 5000 / 1.20 3 + \$ 5000 / 1.20 4 + \$ 5000 / 1.205 + \$ 5000 / 1.206 + \$ 5000 / 1.207 + \$ 5000 / 1.208 + \$ 5000 / 1.209 + \$ 5000 / 1.2010 + \$ 5000 / 1.2011 + \$ 5000 / 1.2012 + \$ 5000 / 1.2013 + \$ 5000 / 1.2014 + \$ 5000 / 1.2015 + \$ 5000 / 1.2016 + \$ 5000 / 1.2017 + \$ 5000 / 1.2018 + \$ 5000 / 1.2019 + \$ 5000 / 1.2020

PW = \$ 4347.90

To find the Annual worth

EUAW = EUAB – EUAC

EUAB = \$ 5000

EUAC = \$ 20,000 (A/P , 20% , 20 years )

EUAC = \$ 20,000 x 0.205357

EUAC = \$ 4,107.14

EUAW = \$ 5000 – \$ 4,107.14

EUAW = \$ 892.86

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Alternative B is preferred .

Asked on May 19, 2017 in