question archive Evaluation of Alternatives at i=10% per year A B ? First Cost ($) 20,000 35,000 60,000 Annual O&M ($/year) 6,000 4,000 3,000 Major Repair ($) 0 2,000 after 5 years of opération 5,000 after 10 years of operation Annual revenues ($/year) 10,000 10,500 11,000 life (years) 5 10 15 Salvage ($) 2,000 2,000 2,000 The annual worth of alternative A is (i=10% per year): 3 points Choose The annual worth of alternative B is (i=10% per year): 3 points Choose The annual worth of alternative C is (i=10% per year): 3 points Choose
Evaluation of Alternatives at i=10% per year A B ? First Cost ($) 20,000 35,000 60,000 Annual O&M ($/year) 6,000 4,000 3,000 Major Repair ($) 0 2,000 after 5 years of opération 5,000 after 10 years of operation Annual revenues ($/year) 10,000 10,500 11,000 life (years) 5 10 15 Salvage ($) 2,000 2,000 2,000 The annual worth of alternative A is (i=10% per year): 3 points Choose The annual worth of alternative B is (i=10% per year): 3 points Choose The annual worth of alternative C is (i=10% per year): 3 points Choose
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Evaluation of Alternatives at i=10% per year A B ? First Cost ($) 20,000 35,000 60,000 Annual O&M ($/year) 6,000 4,000 3,000 Major Repair ($) 0 2,000 after 5 years of opération 5,000 after 10 years of operation Annual revenues ($/year) 10,000 10,500 11,000 life (years) 5 10 15 Salvage ($) 2,000 2,000 2,000 The annual worth of alternative A is (i=10% per year): 3 points Choose The annual worth of alternative B is (i=10% per year): 3 points Choose The annual worth of alternative C is (i=10% per year): 3 points Choose
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Statement showing annual worth of alternative A
Particulars 0 1 2 3 4 5 Total Initial cost -20000 Annual cash inflow 10000 10000 10000 10000 10000 Annual O&M -6000 -6000 -6000 -6000 -6000 Major repair 2000 Total cash flow -20000 4000 4000 4000 4000 6000 PVIF @ 10% 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 PV -20000.00 3636.36 3305.79 3005.26 2732.05 3725.53 -3595.01 PVIFA(10%,5) 3.7908 Annual Worth (Total of PV / PVIFA(10%,5)) -948.35 Thus annual worth of alternative A = -948.35 $
Statement showing annual worth of alternative B
Particulars 0 1 2 3 4 5 6 7 8 9 10 Total Initial cost -35000 Annual cash inflow 10500 10500 10500 10500 10500 10500 10500 10500 10500 10500 Annual O&M -4000 -4000 -4000 -4000 -4000 -4000 -4000 -4000 -4000 -4000 Major repair -2000 2000 Total cash flow -35000 6500 6500 6500 6500 4500 6500 6500 6500 6500 8500 PVIF @ 10% 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 PV -35000.00 5909.09 5371.90 4883.55 4439.59 2794.15 3669.08 3335.53 3032.30 2756.63 3277.12 4468.93 PVIFA(10%,10) 6.1446 Annual Worth (Total of PV / PVIFA(10%,10)) 727.30 Thus annual worth of alternative B = 727.30 $
Statement showing annual worth of alternative C
Particulars 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total Initial cost -60000 Annual cash inflow 11000 11000 11000 11000 11000 11000 11000 11000 11000 11000 11000 11000 11000 11000 11000 Annual O&M -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 -3000 Major repair -5000 2000 Total cash flow -60000 8000 8000 8000 8000 8000 8000 8000 8000 8000 3000 8000 8000 8000 8000 10000 PVIF @ 10% 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394 PV -60000.00 7272.73 6611.57 6010.52 5464.11 4967.37 4515.79 4105.26 3732.06 3392.78 1156.63 2803.95 2549.05 2317.32 2106.65 2393.92 -600.30 PVIFA(10%,15) 7.6061 Annual Worth (Total of PV / PVIFA(10%,15)) -78.92 Thus annual worth of alternative C = -78.92 $
