Question

hree mutually exclusive projects are being considered:

	A	B	C
First cost	$1000	$2000	$3000
Uniform annual benefit	250	350	525
Salvage value	200	300	400
Useful life (years)	5	6	7

Assume identical replacements.

(b)If 8% is the desired rate of return, which project should be selected?

NO EXCEL please

Answer 1

ANSWER:

I = 8%

A) project a:

aw = first cost(a/p,i,n) + uniform annual benefit + salvage value(a/f,i,n)

aw = - 1,000(a/p,8%,5) + 250 - 200(a/f,8%,5)

aw = - 1,000 * 0.2505 + 250 - 200 * 0.1705

aw = - 250.5 + 250 - 34.1

aw = - 34.6

B) project b:

aw = first cost(a/p,i,n) + uniform annual benefit + salvage value(a/f,i,n)

aw = - 2,000(a/p,8%,6) + 350 - 300(a/f,8%,6)

aw = - 2,000 * 0.2163 + 350 - 200 * 0.1363

aw = - 432.6 + 350 - 27.26

aw = - 109.86

C) project c:

aw = first cost(a/p,i,n) + uniform annual benefit + salvage value(a/f,i,n)

aw = - 3,000(a/p,8%,7) + 525 - 400(a/f,8%,7)

aw = - 3,000 * 0.1921 + 525 - 400 * 0.1121

aw = - 576.3 + 525 - 44.84

aw = - 96.14

project a should be selected as it has the highest annual worth.