Alternatives Two pumps are being considered for purchase for a service life of 10 years. Interest rate is 5% Pump 1 Pump 2 Initial Cost $60,000 $75,000 Estimated salvage value at end of useful $10,000 $12,000 lite Useful Life 6 years 12 years Estimated market value, end of 10 year $12,000 $15,000 Apply the present worth technique, which pump should be considered? Solution 1. Neither input por output is the same calculate the net present worth (NPW) 2. NPW Initial cost: PWA k Equivalent PW for salvage and replacement together. PW- k Cash flow at the end of 10 years, PW- k Thus NPW, k 3. NPW Initial cost. PW Equivalent PW for salvage and replacement together: PW- Cash flow at the end of 10 years, PW= k Thus NPW, k 4. Hence use