Explain with example Annual Equivalent Cost Comparison with Unequal Project Lives?

How can we calculate the Total Present Cost for the Base Case and Alternative?

When does the project reach the payback point?

Specs Co is a manufacturer of spectacles and contact lenses. It is evaluating four projects for investment purposes. The projects are being evaluated based on their profitability, which is dependent on market conditions. Market conditions are forecast to be either good, average or poor and the probability of those market conditions occurring are 50%, 30% and 20% respectively. Specs Co has prepared the following profit table: Market conditions Good Average Poor Project 1 $160,000 $80,000 $10,000 Project 1 Project 2 Project 3 Project 4 Project 2 Project 4 $150,000 $130,000 $100,000 $70,000 $20,000 ($20,000) ($30,000) The profitability of the projects has been calculated after deducting directly attributable fixed costs as follows: Fixed costs $500,000 $400,000 $250,000 $200,000 Project 3 $140,000 $60,000 Specs Co has also recently employed a trainee management accountant who has been asking the finance director about how expected values can be used by an organisation.