Answer Happy

Problem 2: Consider the following two mutually exclusive projects: n 0 1 2 3 4 5 Cash Flow A Salvage Value at year n Cash Flow B Salvage Value at year n -12,000 -10,000 -2,000 6,000 -2,100 6,000 -2,000 4,000 -2,100 3,000 -2,000 3,000 -2,100 1,000 -2,000 2,000 -2,000 2,000 Salvage values represent the net return from the disposal of assets if they are sold at the end of the year listed. Both projects will be available (and can be repeated) with the same costs and salvage values for an indefinite period. Using an interest rate of 10%, determine the better alternative by: a) Using the PW Analysis with an infinite planning horizon. b) Using the PW Analysis with a 10-year study period. c) Using the AW Analysis considering the useful life of each alternative.