There are two mutually exclusive proposals -fr)fa for a flood control project in
ID: 1199774 • Letter: T
Question
There are two mutually exclusive proposals -fr)fa for a flood control project in Illinois. The first proposal involves an initial outlay of $1,350,000 and annual expenses of $110,000. This plan is assumed to be permanent. The second proposal requires an initial outlay of $700,000, followed by $200,000 every 12 years thereafter. Annual expenses for the second proposal are estimated to be $95,000 for the first 12 years and $150,000 each year thereafter. Annual benefits are identical for both projects, and terminal salvage values are negligible. The interest rate is 6% per year. Which Proposal should be recommended? (6.5 and 10.9)Explanation / Answer
I think second proposal nshould be rcommended.the first proposal involve 1,350,000 but the second proposal involve only 700,000 so saving is 650000,interest rate is 6% it means direct saving 3,9000 per year.