Question

Use an 8 year project life and a 15% MARR to determine which alternative should be selected. Use the present worth criteria.

	A	B
First Cost	$5,300	$10,700
Net Annual Benefit	$1,800	$2,600
Salvage Value	$3,000	$3,200
Useful Life in years	4	8

Please solve by hand, i am not allowed to use excel

Answer 1

The present worth of alternative A = - $ 5300 + $ 1800 1.15¹ + + $ 1800 1.15² + + $ 1800 1.15³ + + $ 1800 1.15⁴ +  $ 3,000 1.15⁴   

The present worth of alternative A = $ 1554.22

As we are considering 8 years life, the present worth would be $ 1554.22 * 2 = $ 3,108.44

________________________________________________________

The present worth of alternative B = - $ 10,700 + $ 2600 1.15¹ + $ 2600 1.15² + $ 2600 1.15³ + $ 2600 1.15⁴ +  $ 2600 1.15⁵ +  $ 2600 1.15⁶ + $ 2600 1.15⁷ + $ 2600 1.15⁸ + $ 3200 1.15⁸   

Present worth of alternative B = $ 2013.12