12. Find the valuc of A from the given cash flow diagram A. $400 C.5480 D. 5500

Question

12. Find the valuc of A from the given cash flow diagram A. $400 C.5480 D. 5500 PROBLEMS Problem L20 pts) The Deadeye Distillery is opening a new production facility at Sweetwater Springs. ypes of stills are being considered and the following cost estimates have been developed: Two Altenative MASHER SQUEEZE Data Life. Years First Cost Sahage Value S0 M&° Cost 00 M&O; Gradient $200 S10,000 $15,000 $2,000 $1,000 - $400 Determine which altemative should be selected. MARR-29% (Partial Credit: correct method and economic equations, 40%; correct answer 40%) Cash flow diagram 20k Pape 3 of 4

Explanation / Answer

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Masher is better option as cost per year is lower.

For rate of interest 8% w

Cash flow diagram 8% Present value of 2000 after 5 years Return I year 1 0.925926 2year 1 0.857339 3 year 1 0.793832 4 year 1 0.73503 Total 0 3.312127 Note: Rate of interest = MARR = 25% Final value after n years compounded = P(1+25/100)^n = P(1.08)^n where n = number of years Hence present value for 1 dollar 1/1.08^n where n is the numbers of years elpased Thus if A = 1, we get after 5 years amount equal to 3.3121 If return is 1361.166, A = 1361.166/3.3121 = 411 Option B is the right answer

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