Two mutually exclusive projects are under consideration. The cash flow diagrams below depict the costs and savings. Option A is an 8-year project with an upfront cost of $50,000, yearly savings of $8,000 starting in the second year, and a salvage value of $8,000. Option B is a 12-year project with an upfront cost of $35,000, yearly savings of $6,000 starting in the first year, and no salvage value. Option B also has a preventive maintenance cost of $1,000 every 3 year. With a MARR of 4.85% which project, if any, should be selected? Option A Option B $8,000 Salvage $8,000 Savings/yr $6,000 Savings/yr $O Salvage Years Years 3 4 5 1 2 7 8 10 11 $1,000 Preventative maintenance every 3 years $35,000 $50,000 Cash Flow diagrams not to scale
Two mutually exclusive projects are under consideration. The cash flow diagrams below depict the costs and savings. Option A is an 8-year project with an upfront cost of $50,000, yearly savings of $8,000 starting in the second year, and a salvage value of $8,000. Option B is a 12-year project with an upfront cost of $35,000, yearly savings of $6,000 starting in the first year, and no salvage value. Option B also has a preventive maintenance cost of $1,000 every 3 year. With a MARR of 4.85% which project, if any, should be selected? Option A Option B $8,000 Salvage $8,000 Savings/yr $6,000 Savings/yr $O Salvage Years Years 3 4 5 1 2 7 8 10 11 $1,000 Preventative maintenance every 3 years $35,000 $50,000 Cash Flow diagrams not to scale
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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Transcribed Image Text:Two mutually exclusive projects are under consideration. The cash flow diagrams below depict the costs and savings.
Option A is an 8-year project with an upfront cost of $50,000, yearly savings of $8,000 starting in the second year, and a
salvage value of $8,000.
Option B is a 12-year project with an upfront cost of $35,000, yearly savings of $6,000 starting in the first year, and no
salvage value. Option B also has a preventive maintenance cost of $1,000 every 3 year.
With a MARR of 4.85% which project, if any, should be selected?
Option A
Option B
$8,000 Salvage
$8,000 Savings/yr
$6,000 Savings/yr
$O Salvage
-- --
--- --
-Years
6.
Years
8
1
2
3
4
5
7
1
2
4
7
8
10
11
$1,000 Preventative maintenance every 3 years
$35,000
$50,000
Cash Flow diagrams not to scale
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