Answer:
a. AW, A($) = 79646
b. AW, B ($) = 29,367
c. AW, C ($) = 80738
Explanation:
Solution:
First of let's sort out the data given for all three alternatives:
Alternative A:
Capital Investment = $400,000
Annual Expense = $189,000
Annual Revenue = $309,000
Salvage Value = $65,000
Life = 24 Years
Alternative B:
Capital Investment = $230,000
Annual Expense = $122,500
Annual Revenue = $222,500
Salvage Value = $180,000
Life = 5 Years
Alternative C:
Capital Investment = $150,000
Annual Expense = $134,000
Annual Revenue = $234,000
Salvage Value = $130,000
Life = 12 Years
a.
AW, A($) = - 400,000 x A/P(9%, 24) + (309,000 - 189,000) + 65,000 x P/F(9%, 24) x A/P(9%, 24)
AW, A($) = - 400,000 x 0.103 + 120,000 + 65,000 x 0.1264 x 0.103
AW, A($) = - 41,200 + 120,000 + 846.25
AW, A($) = 79646
b.
AW, B ($) = -230,000 x A/P(9%, 5) + (222,500 - 134,000)
AW, B ($) = -230,000 x 0.2571 + (222,500 - 134,000)
AW, B ($) = 29,367
c.
AW, C ($) = - 150,000 x A/P(9%, 12) + (234,000 - 134,000) + 130,000 x P/F(9%, 12) x A/P(9%, 12)
AW, C ($) = - 150,000 x 0.1397 + 100,000 + 130,000 x 0.3555 x 0.1397
AW, C ($) = - 20,955 + 100,000 + 1,692.50
AW, C ($) = 80738
