You are an engineer asked to analyze a single project, and then a second project, using the Present Worth Method.

The first project, called Project A, has a 5-year life. Project A has an initial cost for equipment of $305,000 and promises an annual savings of $75,000 each year of its 5-year life. At the end of 2 years (EOY 2), there is a required $15,000 maintenance cost. After 6 years (EOY 5), the equipment will be sold for a $65,000 salvage value.

(a) What is the Present Worth (at t=0) for Project A? Is this project a good one? (i.e., do you recommend that your organization execute this project?) If so, why? Use a 10% annual interest rate for this analysis. (10 pts)

(b) A second project (named Project B) has a 5-year project life. This alternative has an initial cost of $175,000 (at t=0), and a second implementation cost of $175,000 at EOY 1. This alternative will save the organization $100,000 annually, over the latter 4 years of the projects life (from EOY 2-5). This project will have a $55,000 salvage value at EOY 5. What is the Present Worth (at t=0) of Project B? (15 pts)

(c) Which of the two projects would you recommend? Briefly explain. (10 pts)