Given the following data, use present worth analysis to find out which alternati

Question

Given the following data, use present worth analysis to find out which alternative should be chosen, A, B, or C? Use 10% interest rate.

Two mutually exclusive alternatives are being considered. Both have lives for 5 years. Alternative A has a first cost of $2500 and annual benefits of $746. Alternative B costs $6000 and has annual benefits of $1664. If MARR is 8%, which alternative should be selected? Solve the problem by

(a) Present worth analysis

(b) Annual cash flow analysis

The manager in a canned food processing plant is trying to decide between two labeling machines.

Assume an interest rate of 12%, Use (a) present worth analysis and (b) annual cash flow analysis to determine which machine should be chosen?

1. Given the following data, use present worth analysis to find out which alternative should be chosen, A, B, or CPUse 10% interest rate. Initial Cost Annual benefit Salvage value Useful life 10,000 $15,000 $12,000 6,000 10,000 5,000 1,000 2,000 3,000 years 2 years years 6 2. Two mutually exclusive alternatives are being considered. Both have lives for 5 years. Alternative A has a first cost of $2500 and annual benefits of $746. Alternative B costs $6000 and has annual benefits of $1664. If MARR is 8%, which alternative should be selected? Solve the problem by (a) Present worth analysis (b) Annual cash flow analysis 3. The manager in a canned food processing plant is trying to decide between two labeling machines. Machine A Machine B First Cost Annual O & M costs Annual benefit Salvage value Useful life, in years $15,000 $25,000 1,600 8,000 3,000 400 13,000 6,000 6 Assume an interest rate of 12%, Use (a) present worth analysis and (b) annual cash flow analysis to determine which machine should be chosen?

Explanation / Answer

Given the following data, use present worth analysis to find out which alternative should be chosen, A, B, or C? Use 10% interest rate.

A B C Intial Ivestment -6000 -10000 -5000 PWIFA 10%                1.736                          2.487                4.355 PVIFA Annual benefit/ Annual Benfit       10,413.22                  24,868.52       21,776.30 Salvage value 826.45 1502.63 1693.42 PWC          5,239.67                  16,371.15       18,469.73 Annual PWA                3,019                          6,583                4,241 Rank 3 1 2 Alternative should be chosen, B

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