One of two mutually exclusive alternatives must be selected. Alternative A cost

Question

One of two mutually exclusive alternatives must be selected. Alternative A cost $30,000 now for an annual benefit of $8450. Alternative B costs $ 50,000 now for an annual befneit of ?14,000 using a 15% nominal interest rate compounded continuously which do you recommend? Solve by annual cash flow analysis. One of two mutually exclusive alternatives must be selected. Alternative A cost $30,000 now for an annual benefit of $8450. Alternative B costs $ 50,000 now for an annual befneit of ?14,000 using a 15% nominal interest rate compounded continuously which do you recommend? Solve by annual cash flow analysis.

Explanation / Answer

Since the Net PV of Project-B is higher , it should be selected.

Particular A B Initial Investment(P) 30000 50000 Annual benefit 8450 14000 PV of Annuity@15%=A/r,where A=Annuity and r=Interest Rate(Q) 56333.33 93333.33 Net PV(P-Q) 26333.33 43333.33

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