Choose the best alternative among the three alternatives given in the table below. Use of annual cash flow analysis is required.
$$\begin{array} { | l | l | l | l | }
\hline & \text { A } & \text { B } & \text { C } \
\hline \text { Iritial cost } & \$ 4500 & \$ 1900 & \$ 1200 \
\hline \text { Annual benefit } & \$ 2800 & \$ 700 & \$ 300 \
\hline \text { Salvage value } & \$ 500 & \$ 900 & 0 \
\hline \text { Life in years } & 2 \text { years } & 3 \text { Years } & \text { Infinity } \
\hline \text { MARR } & 5 \% & \
\hline
\end{array}$$

Question

Choose the best alternative among the three alternatives given in the table below. Use of annual cash flow analysis is required.
$$\begin{array} { | l | l | l | l | } 
\hline & \text { A } & \text { B } & \text { C } \
\hline \text { Iritial cost } & \$ 4500 & \$ 1900 & \$ 1200 \
\hline \text { Annual benefit } & \$ 2800 & \$ 700 & \$ 300 \
\hline \text { Salvage value } & \$ 500 & \$ 900 & 0 \
\hline \text { Life in years } & 2 \text { years } & 3 \text { Years } & \text { Infinity } \
\hline \text { MARR } & 5 \% & \
\hline
\end{array}$$

Quizplus · Accepted Answer

The annual cash flow for each alternative is:A: $2800 - $4500 * 0.05 = $2350B: $700 - $1900 * 0.05 = $205C: $300 - $1200 * 0.05 = $180The present worth of the annual cash flow for each alternative is:A: $2350 * (P/A, 5\%, 2) = $4415.20B: $205 * (P/A, 5\%, 3) = $553.05C: $180 * (P/A, 5\%, \infty) = $3600The alternative with the highest present worth is A, so the correct answer is A.

Choose the Best Alternative Among the Three Alternatives Given in the Table