Question 3.4 Consider the following two mutually exclusive projects: Year A1 A2 0 -$1,800 -$3,600 1 -$500 -$ 600 2 -$500 - $600 3 -$500 - $600 -$500 - $600 $ 500+400 - $600 - $600 - $600 8 - $600+1000 a What assumption(s) do you need in order to compare a set of mutually exclusive service projects with unequal service lives? b With the assumption(s) defined in part (a) and using 10%, determine which project should be selected. c If your analysis period (study period) is just 4 years, what would be the salvage value of project A2 at the end of year 4 to make the two alternatives economically indifferent?
Question 3.4 Consider the following two mutually exclusive projects: Year A1 A2 0 -$1,800 -$3,600 1 -$500 -$ 600 2 -$500 - $600 3 -$500 - $600 -$500 - $600 $ 500+400 - $600 - $600 - $600 8 - $600+1000 a What assumption(s) do you need in order to compare a set of mutually exclusive service projects with unequal service lives? b With the assumption(s) defined in part (a) and using 10%, determine which project should be selected. c If your analysis period (study period) is just 4 years, what would be the salvage value of project A2 at the end of year 4 to make the two alternatives economically indifferent?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 3.4
Consider the following two mutually exclusive projects:
Year
A1
A2
0
-$1,800
-$3,600
1
-$500
-$ 600
2
-$500
- $600
3
-$500
- $600
-$500
- $600
$ 500+400
- $600
- $600
- $600
8
- $600+1000
a What assumption(s) do you need in order to compare a set of mutually exclusive service
projects with unequal service lives?
b With the assumption(s) defined in part (a) and using 10%, determine which project should
be selected.
c If your analysis period (study period) is just 4 years, what would be the salvage value of
project A2 at the end of year 4 to make the two alternatives economically indifferent?
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