Homework 6
1. Consider the following three mutually exclusive alternatives
A
B
Cost
$100
$150
Uniform annual
10
17,62
Benefit
Useful life in years
∞
20
C
$200,000
55,48
5
Assuming that alternatives B and C are replaced with identical replacement at the end of
their useful lives, and an 8% interest rate, which alternatives should be selected
2. Some equipment will be installed in a warehouse that a firm has leased for seven years.
There are two alternatives :
A
B
Cost
$100
$150
Uniform annual
55
61
Benefit
Useful life in years
3
4
At any time after the equipment is installed, it has no salvage value. Assume that
alternatives A and B will be replaced at the end of their useful lives by identical equipment
with the same cost and benefits. For a seven year analysis period and a 10% interest rate,
determine which alternative should be selected
3. A cost analysis is to be made to determine what, if anything, should be done I a situation
where there are three “do something” and one”do nothing” alternatives. Estimate of the
cost and benefits are as follows
Alternatives
1
2
3
4
Cost
Uniform annual
Benefit
500
600
700
0
135
100
100
0
End of Useful
life salvage
value
$0
250
180
0
Useful life, in
years
5
5
10
0