Question

Carp, Inc. wants to evaluate two methods of packaging their products, use an interest of 15% and annual cash flow analysis to decide which is the most desirable alternative. First cost O&M costs (yr 1) + Cost gradient Annual benefit Salvage value Useful life, in years $700,000 18,000 +900/yr 154,000 142,000 10 $1,700,000 29,000 +750/yr 303,000 210,000 20

Answer 1

Method A
Item	Years	Amount of Cash Flow	15% Factor	Present Value of Cash Flow
Annual cash inflow	1 to 10	154,000.00	7.019	1,080,926.00
Initial Investment	Now	(718,900.00)	1	(718,900.00)
Net present Value				362,026.00
Method B
Item	Years	Amount of Cash Flow	15% Factor	Present Value of Cash Flow
Annual cash inflow	1 to 20	303,000.00	6.259	1,896,477.00
Initial Investment	Now	(1,729,750.00)	1	(1,729,750.00)
Net present Value				166,727.00

Hence, from the above present value analysis, most desirable packaging method is A.