An irrigator needs a motor to drive a pump. Alternitive A: $2,500 initial cost,
ID: 1248715 • Letter: A
Question
An irrigator needs a motor to drive a pump. Alternitive A: $2,500 initial cost, 10 year economiclife, $500 salvage, $4,500 per year O & M. Buy a new oneevery 10 years Alternitive B: $3,500 initial cost, 20 year economiclife, $500 salvage, $4,000 per year O&M. Buy a new oneevery 20 years. Compute the net annual cost of each ad select the mosteconomical alternitive. Use i = 6%. An irrigator needs a motor to drive a pump. Alternitive A: $2,500 initial cost, 10 year economiclife, $500 salvage, $4,500 per year O & M. Buy a new oneevery 10 years Alternitive B: $3,500 initial cost, 20 year economiclife, $500 salvage, $4,000 per year O&M. Buy a new oneevery 20 years. Compute the net annual cost of each ad select the mosteconomical alternitive. Use i = 6%.Explanation / Answer
Alternative “A” Alternative “B”
Initial Cost -$2,500 Initial Cost - $3,500
Economic Life – 10years Economic Life – 10 years
Salvage Value - $500 peryear Salvage Value - $500 per year
O&M Cost - $4,500 peryear O&M Cost - $4,000 per year
Alternative “A”
The Annual Cost of Alternative A is: $2,500 - $500 [1/PVoA(6%,10)] +$4,500
$2,000 [1/7.360] + $4,500
$2,000 (0.135869) + $4,500
$271.738 + $4,500
Alternative “B”
The Annual Cost of Alternative Bis: $3,500 - $500 [1/PVoA(6%,20)] +$4,000
$3,000 [1/11.470] + $4,000
$3,000 (0.08718) + $4,000
$261.54 + $4,000
The Net Annual Cost of Alternative “B”is $4,261.54
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