Alternative 1 Alternative 2 Capital investment $ 5 ,000 $ 6,500 Annual revenues

Question

Alternative 1

Alternative 2

Capital investment

$5,000

$6,500

Annual revenues

$1,800

$2,075

Annual expenses

$400

$500

Estimated market value

$800

$1,200

Useful life

8 years

10 years

Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 18% per year.

Alternative 1

Alternative 2

Capital investment

$5,000

$6,500

Annual revenues

$1,800

$2,075

Annual expenses

$400

$500

Estimated market value

$800

$1,200

Useful life

8 years

10 years

Explanation / Answer

Particulars Year A PV@18% B PV@18% Capital investment(A) 5000 5000 6500 5000 Annual Revenue(B) 1800 2075 Expenses

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