Question

Determine the best alternative using the annual cash flow analysis from the data given in table below.

A. B. C.

Initial cost: $1500. $1000. $1200

Annual benefit: $800. $250. $300

Salvage value: $500. $0. $600

Life in years: 2 years. Infinity. 4 years

MARR = 10%

Please don't use excel and show all work.

Answer 1

Since projects have unequal lives, Annual Worth (AW) is the cash flow analysis metric used.

AW, Project A ($) = - 1,500 x A/P(10%, 2) + 800 + 500 x P/F(10%, 2) x A/P(10%, 2)

= - 1,500 x 0.5762 + 800 + 500 x 0.8264 x 0.5762

= - 864.3 + 800 + 238.09

= 173.79

AW, Project B ($) = - 1,000 x 0.1 + 250

= - 100 + 250

= 150

AW, Project C ($) = - 1,200 x A/P(10%, 4) + 300 + 600 x P/F(10%, 4) x A/P(10%, 4)

= - 1,200 x 0.3155 + 300 + 600 x 0.6830 x 0.3155

= - 378.6 + 300 + 129.29

= 50.69

Since Project A has highest AW, this should be selected.