Homework Answers
PW of aleternative A = 14M + 3.5M(P/A, 18%, 16) + (14M - 2M)(P/F, 18%, 8) - 2M(P/F, 18%, 16)
= 14M + 3.5M(5.162) + 12M(0.2660) - 2M(0.0708)
= 14M + 18.067M + 3.192M - 0.1416M
= $35.12M
PW of aleternative B = 22M + 3M(P/A, 18%, 16) - 7.5M(P/F, 18%, 16)
= 22M + 3M(5.162) - 7.5M(0.0708)
= 22M + 15.486M - 0.531M
= $36.96M
Since alternative B has less PW, therefore, process line B should be built.
The present value of saving by the better choice = $36.96M - $35.12M = $1.84M
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