Question

Orpheum Productions in Nevada is considering three mutually exclusive alternatives for lighting enhancements to one of its recording studios. Each enhancement will increase revenues by attracting directors who prefer this lighting style. The cash flow details, in thousands of dollars, for these enhancements are shown in the chart below. MARR is 10%/year.

End of Year	Light Bar	Sliding Spots	Reflected Beam
0	-$21,000	-$19,000	-$32,000
1	$3,700	$5,200	$0
2	$3,700	$5,200	$3,100
3	$3,700	$5,200	$6,200
4	$3,700	$5,200	$9,300
5	$3,700	$5,200	$12,400
6	$3,700	$5,200	$15,500

Show the annual worth for each option

Answer 1

MARR = 10%

Cash flow of Light bar and Sliding spots are uniform series but cash flow of Reflected beam is a geometric series with G =3100

Annual worth of Light bar = -21000000* (A/P, 10%, 6) + 3700000

= -21000000*0.22960738 + 3700000

= -1121754.99 = -1121.75 thousands

Annual worth of Sliding spots = -19000000* (A/P, 10%, 6) + 5200000

= -19000000*0.22960738 + 5200000

= 837459.77 = 837.46 thousands

Annual worth of Reflected Beam = -32000000* (A/P, 10%, 6) + 3100000 *(A/G, 10%,6)

= -32000000*0.22960738 + 3100000 *2.223557178

= -454408.92 = -454.41 thousands