A company is considering three alternatives, A, B, and C. The firm must implemen

Question

A company is considering three alternatives, A, B, and C. The firm must implement one or more of the alternatives to resolve an urgent situation. Alternatives "B" Ed "C" are mutually exclusive and alternative "A" is an independent. Cash nows for these alternatives are shown in table below. Using the MARR of 8% per year, answer questions 9, 10 & 11. " Aternatives First cost 3000 Sahrage Valse 1000 Annaal cost s450 6000 1500 -250 5000 3000 every five years -200 Life/ years 9. The number of all feasible alternatives that can be used are h. 4 c. 7 d. 5 10. The feasible alternatives that can be used are: a. A. B, C. AB. AC, BC+ ABC, DN b. A, B, C, AB, AC dA,B, C, AB, BC, AC, ABC c A. B, C, AB 11. The best alternatives that should be selected is a. A b. AB c. AC d. B

Explanation / Answer

9. Since B and C are mutually exclusive, so company cannot go for both alternatives B&C. The number of feasible alternatives are 5.

10. The feasible alternatives are A, B, C, AB, AC

11. NPV for project A = -3000 -450/1.08 -450/(1.08)2 -450/(1.08)3 -450/(1.08)4 +(1000-450)/(1.08)5

= -4116

NPV for project B = -5000 -200/1.08 -200/(1.08)2 -200/(1.08)3 -200/(1.08)4 +(3000-200)/(1.08)5 - ( -5000 -200/1.08 -200/(1.08)2 -200/(1.08)3 -200/(1.08)4 +(3000-200)/(1.08)5)/(1.08)6......

= -3756.8 - (2367.4)

= -6124

NPV for project C = -6000 -250/1.08 -250/(1.08)2 -250/(1.08)3 -250/(1.08)4 +(1500-250)/(1.08)5

= -5977.3

Since loss is min. in alternative A, so the best alternative is project A.

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