Question

Project C costs $-500 to begin and costs $-50 every year to operate with a salvage...

Project C costs $-500 to begin and costs $-50 every year to operate with a salvage value of 120 at the end of year 5. Project D costs $-1200 to begin and costs $-60 every year to operate with a salvage value of 600 at the end. D will last forever, Use an annual rate of 6% to conduct and annual worth analysis to determine the AW for both C and D.

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Answer #1

Project C has a finite life and its AW is -147.409

Project D has infinite life so its calculations will be different.
Initial Cost = 1200
AW = -1200 0.06 = -72
Annual Cost = -60
Project D has infinite life but still, its salvage value has been given. However, discounting for such a large period will yield a negligible salvage value.

Comparing the costs, project D should be selected.

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