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Consider four mutually exclusive alternatives, each having an 8-year life: A. B. C. D. First cost:...

Consider four mutually exclusive alternatives, each having an 8-year life:
A. B. C. D.
First cost: $1000. $800. $600. $500
Uniform annual: 152. 120. 97. 122
Benefit
Salvage value: 750. 500. 500 0
If the minimum attractive rate of return is 12%, which alternative should be selected? Use the incremental analysis method
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Homework Answers

Answer #1

Net Present Value calculation:

Project A B C D
First Cost 1000 800 600 500
Uniform Annual Benefit 152 120 97 122
Discounting Factor (PVAF(8y,12%) 4.968 4.968 4.968 4.968
Present Value of Cash flows 755 596 482 606
Salvage Value 750 500 500 0
Discounting Factor (PVF(8y,12%) 0.404 0.404 0.404 0.404
Present Value of Slavage Value 303 202 202 0
Present Value of total Cash Inflows 1058 798 684 606
Net Present Value 58 -2 84 106

Since, NPV of Project D is the highest, Poject D shoud be selected.

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