Two mutually exclusive projects have the estimated cash flows shown below. Use a future worth analysis to determine which should be selected at an interest rate of 10% per year.
Q
R
First cost, $
42,000
80,000
Annual Cost, $
6,000
$7,000 year 1, increasing by a $1,000 per year
Salvage value, $
0
4,000
Life, years
4
8
Two mutually exclusive projects have the estimated cash flows shown below. Use a future worth analysis to determine which should be selected at an interest rate of 10% per year.
|
Q |
R |
|
|
First cost, $ |
42,000 |
80,000 |
|
Annual Cost, $ |
6,000 |
$7,000 year 1, increasing by a $1,000 per year |
|
Salvage value, $ |
0 |
4,000 |
|
Life, years |
4 |
8 |
Related textbook solutions
Related questions
Consider the following EOY cash flows for two mutually exclusive alternatives (one must be chosen):
|
Machine X |
Machine Y |
|
|
Capital investment |
$6,000 |
$14,000 |
|
Annual expenses |
$2,500 |
$2,400 |
|
Useful life |
12 years |
18 years |
|
Market value at end of useful life |
0 |
$2,800 |
The MARR is 5% per year
a) Determine which alternative should be selected if the repeatability assumption applies.
b) Determine which alternative should be selected if the analysis period is 18 years, the repeatability assumption does not apply, and a machine can be leased for $8,000 per year after the useful life of either machine is over.
