00:01
We have to compare the three alternatives based on their capitalized costs at the interest rate of 8 % per year, which can be calculated for which we can calculate the present worth or pw for each alternative and present worth will represent the net present value of all costs and benefits over the life of each alternative.
01:01
So we have the formula for pw or the present worth equal to minus of c plus aoc by i plus sv by 1 plus i the whole ratio n, where c is the initial cost, aoc is the annual operating cost, sv is the salvage value and interest i is the interest rate which is 8 % per year and obviously n is the life alternative in years.
02:18
Now we calculate the pw for each alternative.
02:25
So for the first alternative e, we have c equals to minus 75 ,000, aoc is minus 70 ,000, sv is 16 ,000, n is 2 and i interest rate is 8 % or 0 .08.
02:57
So we can substitute the value in the formula to get pw of e which will be minus 75 ,000 plus minus 70 ,000 divided by 0 .08 plus 16 ,000 divided by 1 plus 0 .08 raised to 2.
03:25
So this will be minus 75 ,000 minus 875 ,000 plus 13 ,888 .89 which is roughly equal to minus 800 and 36 ,111 .11.
03:57
Now for alternative f, we have the values as c is minus 420 ,000, aoc is minus 14 ,000, the salvage value is 66 ,000 with the life of this alternative f is 4 and interest rate is constant as 0 .08.
04:32
So the probability, sorry, the pw, present worth of f will be minus 420 ,000 plus minus 14 ,000 divided by 8 % plus 66 ,000 divided by 1 plus 0 .08 raised to 4 which will be equal to minus 420 ,000 minus 175 ,000 plus 54 ,756 .5 which will give us the present worth of f minus 540 ,243 .75...