Consider the following EOY cash flows for two mutually exclusive alternatives (o

Question

Consider the following EOY cash flows for two mutually exclusive alternatives (one must be chosen). The MARR is 6 % per year. Capital investment Annual expenses Useful life Market value at end of useful life Lead Acid $6,000 $2,20 Lithium lon $14,000 $2,300 18 years $3,000 $0 Click the icon to view the interest and annuity table for discrete compounding when i= 6% per year. a. Determine which alternative should be selected if the repeatability assumption applies. The AW of the Lead Acid is s (Round to the nearest dollar)

Explanation / Answer

(a)

AW, Lead Acid ($) = 6,000 x A/P(6%, 12) + 2,250 = 6,000 x 0.1193 + 2,250 = 716 + 2,250 = 2,966**

AW, Lithium Ion ($) = 14,000 x A/P(6%, 18) + 2,300 - 3,000 x P/F(6%, 18) x A/P(6%, 18)

= 14,000 x 0.0924 + 2,300 - 3,000 x 0.3503 x 0.0924 = 1,293.6 + 2,300 - 97.1 = 3,496.5 ~ 3,497**

**I have computed AW of costs. If AW of net benefit is required, please enter following values:

AW, Lead Acid ($) = - 2,966

AW, Lithium Ion ($) = - 3,497

(b)

Since Lead Acid has lower AW of costs, this should be selected.

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