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Equivalent Annual Worth

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CONSIDER THE FOLLOWING ESTIMATES, AND USE AN INTEREST RATE OF 10% PER YEAR. THE EQUIVALENT ANNUAL WORTH OF ALTERNATIVE ''A'' IS CLOSEST TO ?
alternatives: ''A'' ''B''

A. \$-25,130 First cost \$ -50,000 -80,000
B. \$-37,100 Annual cost \$/year -20,000 -10,000
C. \$-41,500 Salvage Value, \$ 10,000 25,000
D. \$-42,900 Life, years 3 6

Alternative ''B'' is closest to?
A. \$-25,130
B. \$-28,190
C. \$-37,080
D. \$-39,100

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Solution Preview

We first need to find the Present Worth (PW) of the alternatives. For alternative A, the present worth is equal to -50,000-PW(20,000)+PW(10,000). The first cost is not to be discounted. The PW of annual cost can be found by using the PVIFA table since it is an ...

Solution Summary

The solution explains then calculation of Equivalent Annual Worth

\$2.19