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4. Using prese sing present worth analysis, choose the best alternative from the information below, assuming interest is 12%,
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Answer #1
Ques 4
Particular Alternative A
Initial Cost -75000
Uniform Net Annual Benefit 7500
Salvage Value 20000
NPW(A) -75000 + 7500(P/A 12%, 15 Year) + 20000 (P/F 12%, 15 Year)
-75000 + (7500 X 6.81086) + (20000 X 0.18269)
-20265
Particular Alternative B
Initial Cost -35000
Uniform Net Annual Benefit 6000
Salvage Value 15000
NPW(B) -35000 + 6000 (P/A 12%, 15 Year) + 15000 (P/F 12%, 15 Year)
-35000 + (6000 X 6.81086) + (15000 X 0.18269)
8606
Particular Alternative C
Initial Cost -55000
Uniform Net Annual Benefit 10000
Salvage Value 40000
NPW(C) -55000 + 10000 (P/A 12%, 15 Year) + 40000 (P/F 12%, 15 Year)
-55000 + (10000 X 6.81086) + (40000 X 0.18269)
20416
NPW(C) is the highest hence Alternative C is beneficial.
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