Question

2.c Three mutually exclusive alternatives with different useful lives and annual expenses are presented. The details for each alternative are as follows: Alternative Capital Investment Annual Expenses Reinvestment Useful Life Salvage Value A $6,000 $2,500 None 12 years $0 B $11,000 $2,400 $2,000 at the beginning of year 7 (end of year 6) 18 years $2,800 C $6,000 $2,200 $2,000 at the beginning of year 6 (end of year 5) 15 years $0 1. Using a Minimum Attractive Rate of Return (MARR) of 5% per year, determine the Annual Worth (AW) of each alternative over its useful life. (4M) 2. Additionally, discuss whether it is appropriate to compare alternatives with different useful lives, and justify the method used for such a comparison. (1M)

          2.c Three mutually exclusive alternatives with different useful lives and annual expenses are
presented. The details for each alternative are as follows:
Alternative Capital
Investment
Annual
Expenses
Reinvestment
Useful Life Salvage
Value
A
$6,000
$2,500
None
12 years
$0
B
$11,000
$2,400
$2,000 at the
beginning of year 7
(end of year 6)
18 years
$2,800
C
$6,000
$2,200
$2,000 at the
beginning of year 6
(end of year 5)
15 years
$0
1. Using a Minimum Attractive Rate of Return (MARR) of 5% per year, determine the Annual
Worth (AW) of each alternative over its useful life. (4M)
2. Additionally, discuss whether it is appropriate to compare alternatives with different
useful lives, and justify the method used for such a comparison. (1M)

2.c Three mutually exclusive alternatives with different useful lives and annual expenses are
presented. The details for each alternative are as follows:
Alternative Capital
Investment
Annual
Expenses
Reinvestment
Useful Life Salvage
Value
A
6,0002,500
None
12 years
0
B11,000
2,4002,000 at the
beginning of year 7
(end of year 6)
18 years
2,800
C6,000
2,2002,000 at the
beginning of year 6
(end of year 5)
15 years
0
1. Using a Minimum Attractive Rate of Return (MARR) of 5% per year, determine the Annual
Worth (AW) of each alternative over its useful life. (4M)
2. Additionally, discuss whether it is appropriate to compare alternatives with different
useful lives, and justify the method used for such a comparison. (1M)

Added by Kristine O.

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