Two mutually exclusive computer hard drives designs are under consideration. The

Question

Two mutually exclusive computer hard drives designs are under consideration. The following data apply.

A

First cost = $4000

Annual ATCF=$3500

Salvage=0

life=2 years

B

First cost=$7000

annual ATCF=$4500

Salvage=$1000

Life=4 years

MARR=20%

A) use NPV criterion to calculate the NPV for each alternative. (remember to compare for equal span)

B) use annual worth criteriod to calculate the AW for each alternative

c) calculate the payback for both alterntives

d) use the internal rate of return criterion to analyze the alternatives.

Explanation / Answer

All Amounts in $ 1) Evaluation of Projects using Net Present Value Method Project A NPV $ 1,122.69 Project B NPV $ 4,209.32 2) Annual Worth Method Calculation, Project wise Project A Cash Outflows Present Value $ 4,000.00 (A) Cash Inflows Present Value $ 7,372.69 (B) Annual Worth = (B) - (A) 3372.69 $ Project B Cash Outflows Present Value $ 7,000.00 (A) Cash Inflows Present Value $ 12,482.64 (B) Annual Worth = (B) - (A) 5482.64 $ 3) Payback Period Working for each Project Project A 1 year 1.5 months rounded off to 1 year 2 months Project B 1 year 4 months 4) Working of IRR, based on Trial-and-Error method Project A 47.02% Project B 53.65%

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