CE40/A1

B3 October 09, 2019

CERNECHEZ, JED KYLE B.

2015106731 CE/3

CPR4

COMPARING MEAs WITH EQUAL LIVES

When lives are equal adjustments to cash flows are not required. The MEAs can be
compared by directly comapring their equivalent worth (PW, FW, or AW) calclulated
using the MARR. The deicision will be the same regardless of the equivalent worth
method you use. For a MARR of 12%, select from among the MEAs below.
A B C D
Capital Investment -$150,000 -$85,000 -$75,000 -$120,000
Annual Revenues $28,000 $16,000 $15,000 $22,000
Annual Expenses -$1,000 -$550 -$500 -$700
Market Value (EOL) $20,000 $10,000 $6,000 $11,000
Life (years) 10 10 10 10

a) PW method

PW = −CI + ( AR− AE ) ( PA ,12 % ,10 )+ MV ( PF , 12% ,10)

( 1.12 )10−1
PW = −CI + ( AR− AE )
[
0.12 ( 1.12 )10 ]
+ MV (1.12)−10

PWA = $8,995.49
PWB = $5,515.68
PWC = $ 8,860.07
PWD = $3,891.46
b) FW method

F F
FW = −CI (
P (
, 12 % , 10)+ ( AR− AE )
A )
,12 % , 10 + MV

( 1.12 )10−1
10
FW = −CI (1.12) + ( AR−AE ) [
0.12
+ MV]
FWA = $27,938.62
FWB = $17,130.86
FWC = $27,518.04
FWD = $12,086.27

c) AW method

A A
AW = −CI (
P
,12 % ,10)+ ( AR− AE ) + MV (
F
,12 % , 10 )
0.12(1.12)10 0.12
AW = −CI
[ 10
( 1.12) −1 ]+ ( AR− AE ) + MV
[
(1.12)10−1 ]
AWA = $1,592.06
AWB = $976.19
AWC = $1,568.09
AWD = $688.73