For the data presented below on alternatives A and B and assuming a 10% interest rate, determine which alternative should be recommended using the following methods. Alternative A can be bought again at the end of its useful life.

On the manual solution,

• Draw the required cash flow diagrams

And make sure you include the following for ALL methods:

• What is the decision criteria?
• Present the required equivalency models.
• Show ALL calculations to choose the best alternative.
• What is the best alternative?

Using the payback method:
Using the internal rate of return method:
Using the benefit-cost ratio method:

First cost Uniform annual benefit Useful life Salvage value A B $5,500 $10,700 1,800 2,000 4 years 8 years 0 200