### Present Worth Analysis for Investment AlternativesIn this exercise, we will determine the preferable alternative between two investment options using a present worth analysis, with an interest rate set at 10%.#### Data Table:| Criteria | Alternative X | Alternative Y ||------------------|---------------|---------------|| **Initial Cost** | $12,500 | $8,900 || **Annual Benefit** | $6,800 | $2,000 || **Salvage Value** | $5,000 | $8,900 || **Life in Years** | 2 years | 3 years || **MARR (Minimum Attractive Rate of Return)** | 10% | 10% |### Explanation:- **Initial Cost**: This is the upfront investment required for each alternative.- **Annual Benefit**: The expected annual profit generated by each alternative.- **Salvage Value**: The residual value of the investment at the end of its life.- **Life in Years**: The duration over which the investment will generate returns.- **MARR**: The minimum rate of return acceptable for the investment, used as the discount rate for present worth analysis.The goal is to calculate the present worth of each alternative to determine which one offers a higher net present value, making it the preferred option under the given financial conditions.

Present worth = -P+(AR-Am)( P/A,i%,n)+F(P/F,i%,n) where, P is the initial cost, AR is the annual…

Determine the better of the two alternative using the present worth analysis. Use an interest rate of 10%. Alt. X Alt.Y Initial cost $12,500 $8,900 Annual benefit $6,800 $2,000 Salvage value $5,000 $8,900 Life in years 2 years 3 Years MARR 10%

Determine the better of the two alternative using the present worth analysis. Use an interest rate of 10%. Alt. X Alt.Y Initial cost $12,500 $8,900 Annual benefit $6,800 $2,000 Salvage value $5,000 $8,900 Life in years 2 years 3 Years MARR 10%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

### Present Worth Analysis for Investment Alternatives

In this exercise, we will determine the preferable alternative between two investment options using a present worth analysis, with an interest rate set at 10%.

#### Data Table:

| Criteria | Alternative X | Alternative Y |
|------------------|---------------|---------------|
| **Initial Cost** | $12,500 | $8,900 |
| **Annual Benefit** | $6,800 | $2,000 |
| **Salvage Value** | $5,000 | $8,900 |
| **Life in Years** | 2 years | 3 years |
| **MARR (Minimum Attractive Rate of Return)** | 10% | 10% |

### Explanation:
- **Initial Cost**: This is the upfront investment required for each alternative.
- **Annual Benefit**: The expected annual profit generated by each alternative.
- **Salvage Value**: The residual value of the investment at the end of its life.
- **Life in Years**: The duration over which the investment will generate returns.
- **MARR**: The minimum rate of return acceptable for the investment, used as the discount rate for present worth analysis.

The goal is to calculate the present worth of each alternative to determine which one offers a higher net present value, making it the preferred option under the given financial conditions.

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