Question: Consider the following two mutually exclusive alternatives: Alternative 1 Alternative 2 Cost $8,000 $13,500 Uniform annual benefit 1,200 1,900 Useful life, in years forever 15

Consider the following two mutually exclusive alternatives:

Alternative 1 Alternative 2

Cost $8,000 $13,500

Uniform annual benefit 1,200 1,900

Useful life, in years forever 15

Alternative 2 may be replaced with an identical item every 15 years at the $13,500 cost and will have the $1,900 uniform annual benefit. Assume a 12% interest rate and you must use annual cash flow analysis. Which alternative is the best?

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