Different Lives

4: 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.

(a) What is the EUAB EUAC of Alternative 1? <5 pts>

Suggestion: Use perpetual formula to find EUAC of Alt. 1

Reasoning/Work:

(b) What is the EUAB EUAC of Alternative 2? <5 pts>

Reasoning/Work:

5: Consider the following alternatives:

Alternative 1 Alternative 2

Cost $2,200 $12,500

Uniform annual benefit 500 4,000

Useful life, in years 8 4

Interest rate % 10 10

The analysis period is 8 years. Assume Alternative 2 will not be replaced after 4 years. You must use an annual cash flow analysis.

Suggestion: Find the EUAB EUAC of both Alternatives: 1 & 2. Alt. 1 is a relatively simple calculation. Alt. 2 will involve using a P/A to find the P of the 4-year annual benefit and then using an A/P on that P to find its EUAB spread over 8 years. You also want to use an A/P to find the EUAC of the initial cost spread over 8 years.

(a) What is the EUAB EUAC of Alternative 1? <6 pts>

Reasoning/Work:

(b) What is the EUAB EUAC of Alternative 2? <6 pts>

Reasoning/Work: