There are two alternatives for purchasing a concrete mixer. Both alternatives have the same useful life. The cash flow details of the alternatives are as follows:
Alternative 1: Initial cost = AED 300,000, Annual operating and maintenance cost = AED 20,000, Expected salvage value = AED 125,000, Useful life = S years.
Alternative 2: Initial cost = AED 200,000, Annual operating and maintenance cost = AED 35,000, Expected salvage value = AED 70,000, Useful life = 5 years.
Using the future worth method, find out which alternative should be selected if the rate of interest is 10% per year. Put only the number of the alternative you choose.
FW1
FW2
Alternative