Your boss is considering two different investment alternatives, with the following cash flows: Year Alternative 1...
Your boss is considering two different investment alternatives, with the following cash flows:
Year Alternative 1 Alternative 2
0 -$2,000 -$4,000
1 750 1,200
2 750 1,200
3 750 1,200
4 750 1,200
5 2,000 3,200
The minimum acceptable rate of return is 10% per year.
a) What is the annual worth of alternative 1?
b) What is the annual worth of alternative 2?
c) Given your answers to parts a) and b), which alternative should be selected?
d) Now, compute the annual worth of alternative 1, if in addition to the annual profit of 750, there is also a one-time maintenance cost of 1,000 in year 3.
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