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Select the feasible alternative by using present value method and Equivalent annual cost method.

Select the feasible alternative by using present value method and Equivalent annual cost method.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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6. In a company's renovation of a small office building, two feasible alternatives for upgrading the heating, ventilation, and air conditioning (HVAC) system have been identified. Either Alternative A or Alternative Bmust be implemented. The costs are as follows: Alternative A: Rebuild (overhaul) the existing HVAC system V Equipment, labor, and materials to rebuild. v Annual cost of electricity v Annual maintenance expenses . ETB 18,000 ETB 32,000 ЕТВ 2,400 Alternative B: Install a new HVAC system that utilizes existing ductwork V Equipment, labor, and materials to install. v Annual cost of electricity. . ETB 60,000 .ЕТВ 9,000 V Annual maintenance expenses ETB 16,000 v Replacement of a major component four years hence.. ETB 9,400 At the end of eight years, the estimated market value for Alternative A is ETB 2,000 and for Alternative B it is ETB 8,000. Assume that both alternatives will provide comparable service (comfort) over an eight-year period, by using 8% discount rate Select the feasible alternative by using present value method and Equivalent annual cost method.
Transcribed Image Text:6. In a company's renovation of a small office building, two feasible alternatives for upgrading the heating, ventilation, and air conditioning (HVAC) system have been identified. Either Alternative A or Alternative Bmust be implemented. The costs are as follows: Alternative A: Rebuild (overhaul) the existing HVAC system V Equipment, labor, and materials to rebuild. v Annual cost of electricity v Annual maintenance expenses . ETB 18,000 ETB 32,000 ЕТВ 2,400 Alternative B: Install a new HVAC system that utilizes existing ductwork V Equipment, labor, and materials to install. v Annual cost of electricity. . ETB 60,000 .ЕТВ 9,000 V Annual maintenance expenses ETB 16,000 v Replacement of a major component four years hence.. ETB 9,400 At the end of eight years, the estimated market value for Alternative A is ETB 2,000 and for Alternative B it is ETB 8,000. Assume that both alternatives will provide comparable service (comfort) over an eight-year period, by using 8% discount rate Select the feasible alternative by using present value method and Equivalent annual cost method.
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