The accounting department is involved in a little wager. The accountants believe

Question

The accounting department is involved in a little wager. The accountants believe that an engineer cannot correctly determine which alternative should be chosen using equivalent uniform annual cash flow analysis. As a means of proving this statement, the accountants have provided you with the following data: The accounting department has chosen Alternative B. Use the best method to select the best alternative and use cash flow of each alternative using a MARR of 12%. State whether or not you agree with the accounting department.

Explanation / Answer

A)

Initial amount = 123000

Net savings = 67000 - (2800+21200) = 43000

NPV = -123000 + 43000 * 4.564 = 73252

B)

Initial amount = 135000

Net savings = 73000 - (3000+29000) = 41000

NPV = -135000 + 41000 * 5.938 = 108458

C)

Initial amount = 112000

Net savings = 46000 - (2000+15000) = 29000

NPV = -112000+ 29000 * 5.328= 42512

They choose correctly because that option gives more NPV.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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