Consider the following two mutually exclusive cost alternatives: Capital investm
ID: 2571219 • Letter: C
Question
Consider the following two mutually exclusive cost alternatives: Capital investment Annual expenses Useful life Market value at the end of useful life Alternative A $8,000 $3,500 Alternative B $16,000 3,400 12 years $3,000 8 years 0 Given that the MARR is 10% per year, answer the following: a. Assuming repeatability applies, determine which alternative should be selected. (5 points) b. For a study period of 12 years, and assuming repeatability does not hold, for the Alternative A consider there will be an annual contracting cost of $7,000 in the end of 9h, 10h, 11th and 12th ye and still no market value for A, determine which alternative should be selected. (5 points)Explanation / Answer
nO PROJECT SHOULD BE SELECTED AS THE NPV is negative
B.
A B Capital investement 8000 16000 Annual expenses 3500 3400 Market Value 0 3000 MARR applied at 10 % 8 years 12 years 5.335 6.814 Total expense at end 18672.5 23167.6 less salvage value 0 3000 18672.5 20167.6 NPV 8000-18672.5 -10672.5 16000-20167.6 -4167.6