Use inual Cost Analysis to determine whether Alternative A or B should be chosen. The analysis period is 5 years. Assume an interest rate of 6% per year, compounded annually
Use inual Cost Analysis to determine whether Alternative A or B should be chosen. The analysis period is 5 years. Assume an interest rate of 6% per year, compounded annually
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Use Annual Cost Analysis to determine whether Alternative A or B should be chosen. The analysis
period is 5 years. Assume an interest rate of 6% per year, compounded annually
Alternative A
Alternative B
Initial Cost
Annual Benefit
Salvage Value
Useful Life (yrs)
1800
150
400
5
4230
340
2100
5
Alternative B should be chosen, because its annual benefit is higher than Alternative A's
Alternative A should be chosen, because its initial cost is lower than Alternative B's
Alternative B should be chosen, because its equivalent annual cost is $85.30 higher than Alternative A's
Alternative A should be chosen, because its equivalent annual cost is $85.30 lower than Alternative B's](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf7465a1-1f06-4ade-b6d3-6ab1782d9bd3%2F8beb77e5-66c3-4d93-83a4-2f0e890020bc%2F02an5v_processed.png&w=3840&q=75)
Transcribed Image Text:Use Annual Cost Analysis to determine whether Alternative A or B should be chosen. The analysis
period is 5 years. Assume an interest rate of 6% per year, compounded annually
Alternative A
Alternative B
Initial Cost
Annual Benefit
Salvage Value
Useful Life (yrs)
1800
150
400
5
4230
340
2100
5
Alternative B should be chosen, because its annual benefit is higher than Alternative A's
Alternative A should be chosen, because its initial cost is lower than Alternative B's
Alternative B should be chosen, because its equivalent annual cost is $85.30 higher than Alternative A's
Alternative A should be chosen, because its equivalent annual cost is $85.30 lower than Alternative B's
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