Question

Muthu Construction Works has been offered a tender to install an escalator in MARA Building at Kulai, Johor. The company has two alternatives with details as shown in the TABLE Q4(b). Choose the best alternative for the company using Present Worth (PW) method if the interest is 12% compounded every quarter year. Your answer should include cash flow diagrams for each alternative and solved by either the formula or table. Based on your answer, which alternative should be selected? Give your rationale for the choice.

Table 4Q(b)

information	alternaties X (RM)	Alternative Y (RM)
First cost	55000	85000
Operational cost (every 3 months)	15000	3000
Salvage value	5000	8500
Lifetime, year	2	4

Answer 1

alternative Y is preferred over alternative X because it has higher present worth