Question

Question 4. (20 points): The Big Discount Furniture Store (BDFS) needs a new generator. Compute the present worth for these mutually exclusive alternative and identify which you would recommend giving the interest ratei - 5,5% per year. BDFS use a 10-year planning horizon.

Answer 1

Given BDFS use a 10 year planning horision means that Alternative Ashould be replaced with identical alternative at the end of 5 years. For Alternative A initial cost for A is $4500 Salvage value for Aps $0.$.500 life time for Air Syears. hear interest rate is 5.5% 9. 5.5% por lear Present wath : We know the formual for present wolta s p = f-Intialcok - Replacemene covecpip,,n) - + Salvage Value (PIF, i, n)] = - 4500 -14500 + 1500 7 4500 7 Jadratus at verarmus (2325 =) -4380 - 3u13 loer) 4 (3215434 (2427152] 7$ 7267-822

for Alternative B: initial cole a $ 5500 Salvage vabe is so Time period (or) lifes $ 10 years Preseno colth =) - 5500 t o 17550% 5370 + 0 Pes for B = - 1.0550 A this. ( -5-5570 The present north B es Alternative B Selected than Alternative