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Comparing Alternatives
Comparing Alternatives
- 6,000 /year
- 15,000
0 1 2 3
B
- 2,000 /year
- 20,000
Dr. C.J. Su IEEM Dept. HKUST
If MARR = 20%, Alternatives A & B
“coterminated” at year 3
AW (A) = -15,000 (A/P, 20%, 3) - 6,000 +
4,000(A/F, 20%, 3) = -12,021
AW(B) = -20,000(A/P, 20%, 3) - 2,000 = -11,494
=> B > A
Using PW or FW will yield the same result.
- 6,000 /year
- 15,000
The new processing facility is needed by your firm at least as far into the
future as the strategic plan forecasts operating requirements. The
MARR, before taxes, is 20% per year. Based on this information, which
model slurry pump should you select?
AW(20%)HEPS9 = - 47,600(A/P,20%,5) +
15,000(A/F,20%,5) - 1,720
- [$500(P/F,20%,4) + $600(P/F,20%,5)] x
(A/P,20%,5) = - 15,783
AW(20%)SP240 = - 15,187 (from previous example)
SP240 > HEPS9
i= 12% / 12 = 1%
CW = A / i = 15,000 / 0.01 = 1,500,000