Given the data for three mutually exclusive alternatives, find the best alternat
ID: 1091021 • Letter: G
Question
Given the data for three mutually exclusive alternatives, find the best alternative using Future worth Analysis. Assume alternatives are replaced at the end of their useful lives. MARR = 12%.
Data
Alt. A
Alt. B
Alt. C
Initial Cost
$6,000
$1,000
$1,500
Uniform Annual Benefit
$525
$300
$450
Useful Life ,Years
20
5
10
Alt. B
Alt. C
Alt. A
Alt. A or Alt. C
Data
Alt. A
Alt. B
Alt. C
Initial Cost
$6,000
$1,000
$1,500
Uniform Annual Benefit
$525
$300
$450
Useful Life ,Years
20
5
10
Explanation / Answer
FW of alternative A after 20 years, = -(6000*1.12^20)+525*FVIFA(12,20)
= -(6000*1.12^20)+525*72.0524 = -$20050.248
FW of alternative B, after 5 years = -(1000*1.12^5)+300*FVIFA(12,5)
= -(1000*1.12^5)+300*6.3528 = $143.498
FW after 20 years of B = 143.498*1.12^15 = $785.445
FW of alternative C, after 10 years = -(1500*1.12^10)+450*FVIFA(12,10)
= -(1500*1.12^10)+450*17.5487 = $3238.1426
FW after 20 years of C = 3238.1426*1.12^10 = $10057.1793
ALternative C should be selected
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