GROUP 1_ QUIZ FOR EVALUATING MUTUALLY EXCLUSIVE ALTERNATIVE

Problem Solving
1. Investment Alternative

Best Flight, Inc., is considering three mutually exclusive alternatives for implementing an automated
passenger check-in counter at its hub airport. Each alternative meets the same service requirements,
but differences in capital investment amounts and benefits (cost savings) exist among them. The study
period is 10 years, and the useful lives of all three alternatives are also 10 years. Market values of all
alternatives are assumed to be zero at the end of their useful lives. If the airline’s MARR is 10% per year,
which alternative should be selected?

Alternative A B C
Capital Investment $390,000 $920,000 $660,000
Cost Savings Per Year $69,000 $167,000 $133,500

a. Using Equivalent Worth Methods, Solve for AW, and FW

b. Do AW and FW select the same alternative?

2. Four mutually exclusive alternatives are being evaluated, and their costs and revenues are itemized
below.

a. If the MARR is 15% per year and the analysis period is 12 years, use the PW method to determine
which alternatives are economically acceptable, Infeasible and which one should be selected.

b. If the total capital investment budget available is $200,000, which alternative should be selected?

c. Which rule/case applies and what type of cash flow estimates is present?

Project I II III IV

Capital investment $110,000 $156,000 $190,000 $231,000

Annual revenues less expenses 20,000 31,000 36,000 45,000

Market value (end of useful life) 11,000 5,000 20,000 25,000

Useful life (years) 12 12 12 12