Question

e chosen) The MARS the owing tot cash rows of two mutually exclusive alle Capital investment Annual expenses Useful life Market value at end of useful in Lead Acid $6.000 $2.500 12 years Lithium Ion $14.000 $2.400 18 years $2.800 Chap Click the icon to view the Interest and annuity table for discrete compounding when / -5% per year a. Determine which alternative should be selected the repeatability assumption applies 92.1 The AW of the Lead Acid is 5 - 3176 8. (Round to the nearest dollar) Unli The AW of the Lithium ion is 5-3497 6. (Round to the nearest dollar) que Which alternative should be selected? Choose the correct answer below (1/1) (0.88/1 1/1) 1/1) Lead Acid Lithium Ion b. Determine which alternative should be selected if the analysis period is 18 years, the repeatability assumption does not apply, and a battery system can be leased for 5 000 per year after the useful life of the battery is over

determine which alternative should be selected if the analysis period is 18 years, the repeatability assumption does not apply, and a battery system can be leased for 8,000$ per year after the useful life of either battery is over.

Answer 1

Part-a:

The AW of lead acid =Present Value of Cash Flows from Lead acid/PVIFA(5%,12)

= Present Value of Salvage Value -(Capital Investment + Present Value of Annual Expenses) }/PVIFA(5%,12)

= [0 – {6,000 + 2,500*PVIFA(5%,12)} ]/ PVIFA(5%,12)

= {0 –(6,000 + 2,500*8.8633)}/8.8633

= -28,158.25/8.8633

= -$3,176.95

.

.

The AW of lithium ion =Present Value of Cash Flows from Lithium Ion/PVIFA(5%,18)

= Present Value of Salvage Value -(Capital Investment + Present Value of Annual Expenses) }/PVIFA(5%,12)

= [2,800*0.4155 – {14,000 + 2,400*PVIFA(5%,18)} ]/ PVIFA(5%,18)

= {1,163.40 –(14,000 + 2,400*11.6896)}/11.6896

= -40,891.64/11.6896

= -$3,498.12

.

.

Lead Acid should be selected since it has lower AW i.e. Annual Outflow from Lead Acid is lower as compared to Lithium Ion.

.

.

Part-b:

Present Value of Cash Flows from Lead Acid = -Present Value of Lease Rentals -(Capital Investment + Present Value of Annual Expenses)

= 8,000*PVIFA(5%,6)/1.05^12 – (6,000 + 2,500*PVIFA(5%,12)

= -8,000*5.0757/1.79585 - 28,158.25

= -4,454.70 – 28,158.25

= -$26,612.95

.

Present Value of Cash Flows from Lithium Ion = = Present Value of Salvage Value -(Capital Investment + Present Value of Annual Expenses)

= [2,800*0.4155 – {14,000 + 2,400*PVIFA(5%,18)}

= {1,163.40 –(14,000 + 2,400*11.6896)}

= -40,891.64

.

.

Lead Acid should be selected since it has lower negative NPV.