Q8: DEWA has two renewal energy altermasociated wi research facility. The cash f

Question

Q8: DEWA has two renewal energy altermasociated wi research facility. The cash flow conventional B-C ratio method. winterest rate for providing energy at a remote governme a 25-year study period. One alte estimates asso selected. be selected at an interest rate of 10% per year over ty. The cash flow estimates associat energy alternatives are available for p the equivalent-worth measure, to determine wh (15 ma with each al ed with each alternative are given below. Use the must be with Annual Worth ternative IAlternative II (XX) 5359,500 990,000 Initial cost, $ Annual maintenance Annual benefits. S/yr Salvage value, S 1.000,000 costs, S/yr $380,000 500,000 17,000 59.500 15,800 990200 49

Explanation / Answer

Capital recovery = -Intial investment + salvage value (Both are converted to annual amounts)

AW = CR + Benefits - Costs

Alternative 1

AW = -1000000*PMT(10%,25,-1) + 17000*PMT(10%,25,,-1) + 500000 - 380000

AW = -1000000*0.11 + 17000*0.01 + 120000

AW = 10004.79

Alternative 2

AW = -990000*PMT(10%,25,-1) + 15800*PMT(10%,25,,-1) + 459500 - 359500

AW = -990000*0.11 + 15800*0.01 + 100000

AW = -8905.74

Annual Worth of Alternative 1 is higher than Alternative 2.

Select Alternative 1

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