Use Annual Cost Analysis to determine whether Alternative A or B should be chose

Question

Use Annual Cost Analysis to determine whether Alternative A or B should be chosen. The analysis period is 5 years. Assume an interest rate of6% per year, compounded annually Initial Cost Annual Benefit Salvage Value Useful Life (yrs) Alternative A 3700 750 40 Alternative B 7420 1540 80 O Alternative A should be chosen, because its initial cost is lower than Alternative B's O Alternative B should be chosen, because its annual benefit is higher than Alternative A's O Alternative A should be chosen, because its equivalent annual cost is $86.03 lower than Alternative B's o Alternative B should be chosen, because its equivalent annual cost is $86.03 higher than Alternative As

Explanation / Answer

Third option is the correct option.

Alternative A should be chosen, because its equivalent annual cost is $86.03 lower than Alternative B's

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