Check my work You have been asked to evaluate two alternatives, X and Y, that ma

Question

Check my work You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydraulic hoses. The parameters associated with each alternative have been estimated. Which one should be selected on the basis of a present worth comparison at an interest rate of 12% per year? Why is yours the correct choice? 10 points ternative S-40,000 $-95,000 Cost intenance cost, per irst $8000 $-3000 eBook Hint Print References Year 5,000 5 years $6,000 5 years age Value The present worth of alternative Xis$ 1 and that of alternative Y is $ Alternative ick toeB is selected by the company

Explanation / Answer

Answer
PW=-C-A*(P|A,i,n)+SV*(P|F,i,n)
C=first cost
A=annual cost
SV=salvage value
i=12%
n=5

PW of alternative X=-40000-8000*(P|A,12%,5)+5000*(P|F,12%,5)
=-40000-8000*3.6047762+5000*0.56742685
=-66001.0753

PW of alternativee Y=-95000-3000*3.6047762+6000*0.56742685
=-102409.767

The alternative X have lower cost in absolute term so it should be selected.

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