8.28 A firm is considering three mutually exclusive alternatives as part of a pr

Question

8.28 A firm is considering three mutually exclusive alternatives as part of a production improvement program. The alternatives are as follows:

A

B

C

Installed cost

$10,000

$15,000

$20,000

Uniform annual benefit

1,625

1,625

1,890

Useful life, in years

10

20

20

For each alternative, the salvage value at the end of useful life is zero. At the end of 10 years, Alt. A could be replaced by another A with identical cost and benefits.

A) Construct a choice table for interest rates from 0% to 100%.

B) The MARR is 6%. If the analysis period is 20 years, which alternative should be selected?

A

B

C

Installed cost

$10,000

$15,000

$20,000

Uniform annual benefit

1,625

1,625

1,890

Useful life, in years

10

20

20

Explanation / Answer

A)

_______________________________________________________________________________

B) If the MARR is 6% and the period of analysis is 20 years, the alternative to be selected is Alternative A because as seen from the table, the Net present value of alternative A at a MARR of 6% equals $ 3,920.28 which is higher than the NPV's of alternative B or alternative C

Interest rate % Net present value Alternative A Net present value Alternative B Net present value Alternative C 0 $12,500.00 $17,500.00 $17,800.00 1 $10,781.74 $14,324.02 $14,106.10 2 $9,193.40 $11,571.08 $10,904.21 3 $7,723.16 $9,175.90 $8,118.43 4 $6,360.41 $7,084.28 $5,685.72 5 $5,095.64 $5,251.09 $3,553.58 6 $3,920.28 $3,638.62 $1,678.15 7 $2,826.64 $2,215.27 $22.69 8 $1,807.76 $954.49 ($1,443.70) 9 $857.39 ($166.11) ($2,747.05) 10 ($30.16) ($1,165.46) ($3,909.36) 11 ($860.00) ($2,059.59) ($4,949.31) 12 ($1,636.78) ($2,862.15) ($5,882.75) 13 ($2,364.71) ($3,584.78) ($6,723.22) 14 ($3,047.62) ($4,237.41) ($7,482.28) 15 ($3,689.00) ($4,828.59) ($8,169.86) 16 ($4,292.01) ($5,365.63) ($8,794.49) 17 ($4,859.54) ($5,854.88) ($9,363.52) 18 ($5,394.22) ($6,301.79) ($9,883.31) 19 ($5,898.46) ($6,711.10) ($10,359.37) 20 ($6,374.47) ($7,086.93) ($10,796.49) 21 ($6,824.25) ($7,432.88) ($11,198.85) 22 ($7,249.65) ($7,752.07) ($11,570.10) 23 ($7,652.37) ($8,047.25) ($11,913.42) 24 ($8,033.97) ($8,320.83) ($12,231.61) 25 ($8,395.86) ($8,574.94) ($12,527.16) 26 ($8,739.38) ($8,811.44) ($12,802.23) 27 ($9,065.73) ($9,032.00) ($13,058.75) 28 ($9,376.02) ($9,238.07) ($13,298.43) 29 ($9,671.29) ($9,430.96) ($13,522.78) 30 ($9,952.50) ($9,611.83) ($13,733.15) 31 ($10,220.51) ($9,781.73) ($13,930.75) 32 ($10,476.15) ($9,941.56) ($14,116.65) 33 ($10,720.18) ($10,092.18) ($14,291.82) 34 ($10,953.28) ($10,234.31) ($14,457.13) 35 ($11,176.11) ($10,368.63) ($14,613.36) 36 ($11,389.28) ($10,495.74) ($14,761.20) 37 ($11,593.33) ($10,616.20) ($14,901.31) 38 ($11,788.80) ($10,730.50) ($15,034.24) 39 ($11,976.17) ($10,839.08) ($15,160.53) 40 ($12,155.89) ($10,942.36) ($15,280.65) 41 ($12,328.39) ($11,040.69) ($15,395.02) 42 ($12,494.05) ($11,134.43) ($15,504.05) 43 ($12,653.24) ($11,223.89) ($15,608.09) 44 ($12,806.30) ($11,309.33) ($15,707.47) 45 ($12,953.57) ($11,391.03) ($15,802.49) 46 ($13,095.33) ($11,469.22) ($15,893.43) 47 ($13,231.87) ($11,544.11) ($15,980.53) 48 ($13,363.45) ($11,615.91) ($16,064.05) 49 ($13,490.32) ($11,684.81) ($16,144.18) 50 ($13,612.72) ($11,750.98) ($16,221.14) 51 ($13,730.86) ($11,814.56) ($16,295.09) 52 ($13,844.94) ($11,875.72) ($16,366.22) 53 ($13,955.16) ($11,934.58) ($16,434.68) 54 ($14,061.70) ($11,991.28) ($16,500.62) 55 ($14,164.73) ($12,045.92) ($16,564.17) 56 ($14,264.42) ($12,098.61) ($16,625.46) 57 ($14,360.91) ($12,149.47) ($16,684.61) 58 ($14,454.35) ($12,198.57) ($16,741.73) 59 ($14,544.87) ($12,246.02) ($16,796.91) 60 ($14,632.60) ($12,291.89) ($16,850.26) 61 ($14,717.66) ($12,336.26) ($16,901.87) 62 ($14,800.17) ($12,379.20) ($16,951.81) 63 ($14,880.23) ($12,420.78) ($17,000.17) 64 ($14,957.95) ($12,461.07) ($17,047.02) 65 ($15,033.43) ($12,500.11) ($17,092.44) 66 ($15,106.75) ($12,537.98) ($17,136.48) 67 ($15,178.00) ($12,574.71) ($17,179.20) 68 ($15,247.27) ($12,610.37) ($17,220.67) 69 ($15,314.64) ($12,644.99) ($17,260.95) 70 ($15,380.17) ($12,678.63) ($17,300.07) 71 ($15,443.95) ($12,711.32) ($17,338.09) 72 ($15,506.03) ($12,743.10) ($17,375.05) 73 ($15,566.48) ($12,774.01) ($17,411.00) 74 ($15,625.37) ($12,804.09) ($17,445.99) 75 ($15,682.75) ($12,833.36) ($17,480.03) 76 ($15,738.68) ($12,861.87) ($17,513.19) 77 ($15,793.21) ($12,889.63) ($17,545.48) 78 ($15,846.38) ($12,916.69) ($17,576.95) 79 ($15,898.26) ($12,943.06) ($17,607.62) 80 ($15,948.88) ($12,968.77) ($17,637.52) 81 ($15,998.29) ($12,993.84) ($17,666.68) 82 ($16,046.52) ($13,018.31) ($17,695.14) 83 ($16,093.63) ($13,042.18) ($17,722.90) 84 ($16,139.65) ($13,065.49) ($17,750.01) 85 ($16,184.61) ($13,088.24) ($17,776.48) 86 ($16,228.56) ($13,110.47) ($17,802.33) 87 ($16,271.51) ($13,132.19) ($17,827.59) 88 ($16,313.51) ($13,153.42) ($17,852.28) 89 ($16,354.59) ($13,174.16) ($17,876.41) 90 ($16,394.78) ($13,194.45) ($17,900.01) 91 ($16,434.10) ($13,214.29) ($17,923.08) 92 ($16,472.58) ($13,233.70) ($17,945.66) 93 ($16,510.25) ($13,252.69) ($17,967.75) 94 ($16,547.13) ($13,271.28) ($17,989.37) 95 ($16,583.25) ($13,289.48) ($18,010.53) 96 ($16,618.63) ($13,307.29) ($18,031.25) 97 ($16,653.29) ($13,324.74) ($18,051.55) 98 ($16,687.25) ($13,341.84) ($18,071.43) 99 ($16,720.54) ($13,358.59) ($18,090.91) 100 ($16,753.17) ($13,375.00) ($18,110.00)

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