Question

Consider the following mutually exclusive alternatives: Alternative A Alternative B Capital investment Net annual receipts $702,000...

Consider the following mutually exclusive alternatives:

Alternative A

Alternative B

Capital investment

Net annual receipts

$702,000

$123,550

$1,656,000

$276,200

Both alternatives have a useful life of 12 years and no market value at that time. The MARR is 12 % per year. Determine the annual worth (AW) of the most profitable course of action. (Enter your answer as a number without the dollar sign.)

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Homework Answers

Answer #1


We need to find the Present worth of Alternative A

PW(A)=PW of Net Annual receipts-Capital Investment

=123550(P/A,12%,12)-702000

=123550*6.194-702000

=63268.7

PW(B)=PW of Net Annual receipts-Capital Investment

=276200(P/A,12%,12)-1656000

=276200*6.194-1656000

=54782.8

AW(A)=PW(A)/(P/A,12%,12)=63268.7/6.194=10214.514

AW(B)=PW(B)/(P/A,12%,12)=54782.8/6.194=8844.49

AW (Alternative A)> AW (Alternative B)

Alternative A to be chosen over Alternative B

Answer is

Annual Worth of Alternative A=10214.514

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