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

Answer a. Statement showing calculation of NPV Alternative A Alternative B Alternative C Particulars Year 12% Factor Amount Present value Year 12% Factor Amount Present value Year 12% Factor Amount Present value Cash Inflow Annual Cash Inflows 1 - 7         4.5638         150,000                   684,563 1 - 11         5.9377 135000        801,589.38 1-9 5.3282 112000 596763.9767 A. Total Cash Inflow - PV                   684,563              801,589              596,764 Cash Outflow Cost of Machinery 0         1.0000         123,000                   123,000 0         1.0000 135000        135,000.00 0 1 112000 112000 M & O Grad 1 - 7         4.5638            67,000                   305,772 1 - 11         5.9377 73000        433,452.04 1 - 9 5.3282 46000 245099.4904 M & o Cost 1 - 7         4.5638              2,800                     12,779 1 - 11         5.9377 3000          17,813.10 1 - 9 5.3282 2000 10656.49958 B. Total Cash Outflow - PV                   441,550        586,265.13        367,755.99 NPV (A - B)                   243,013              215,324              229,008 Altermnative A - is the best method as NPV is highest in Alternative A

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