2. (25 points) Th improve the production activities in his plant. The estimated

Question

2. (25 points) Th improve the production activities in his plant. The estimated initial investment and annual revenues are as shown below. If the proposals are all expected to have a life of five years with no salvage value, use the annual worth criteria with a MARR of 15% to determine which alternative should be selected. e production manager of a plant is considering four mutually exclusive proposals to Alternative Initial Cost Net Annual Income Salvage Value $10,000 $5,312 $1,000 $15,000 $6,209 $1,300 $20,000 $7,077 $1,800

Explanation / Answer

Annual Worth (AW) of alternatives are computed as follows.

AW, Alternative B ($) = - 10,000 x A/P(15%, 5) + 5,312 = - 10,000 x 0.2983 + 5,312 = - 2,983 + 5,312 = 2,329

AW, Alternative C ($) = - 15,000 x A/P(15%, 5) + 6,209 = - 15,000 x 0.2983 + 6,209 = - 4,475 + 6,209 = 1,734

AW, Alternative D ($) = - 20,000 x A/P(15%, 5) + 7,077 = - 20,000 x 0.2983 + 7,077 = - 5,966 + 7,077 = 1,111

Since Alternative B has highest AW, this should be selected.

NOTE: Even though data table mentions salvage value, question asks to assume no salvage value, therefore salvage value is ignored.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.