Consider four mutually exclusive alternatives, each having an 8-year life: A. B.

Question

Consider four mutually exclusive alternatives, each having an 8-year life: A. B. C. D. First cost: $1000. $800. $600. $500 Uniform annual: 152. 120. 97. 122 Benefit Salvage value: 750. 500. 500 0 If the minimum attractive rate of return is 12%, which alternative should be selected? Use the incremental analysis method Consider four mutually exclusive alternatives, each having an 8-year life: A. B. C. D. First cost: $1000. $800. $600. $500 Uniform annual: 152. 120. 97. 122 Benefit Salvage value: 750. 500. 500 0 If the minimum attractive rate of return is 12%, which alternative should be selected? Use the incremental analysis method A. B. C. D. First cost: $1000. $800. $600. $500 Uniform annual: 152. 120. 97. 122 Benefit Salvage value: 750. 500. 500 0 If the minimum attractive rate of return is 12%, which alternative should be selected? Use the incremental analysis method

Explanation / Answer

Net Present Value calculation:

Since, NPV of Project D is the highest, Poject D shoud be selected.

Project A B C D First Cost 1000 800 600 500 Uniform Annual Benefit 152 120 97 122 Discounting Factor (PVAF(8y,12%) 4.968 4.968 4.968 4.968 Present Value of Cash flows 755 596 482 606 Salvage Value 750 500 500 0 Discounting Factor (PVF(8y,12%) 0.404 0.404 0.404 0.404 Present Value of Slavage Value 303 202 202 0 Present Value of total Cash Inflows 1058 798 684 606 Net Present Value 58 -2 84 106

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