Week 4.docx - 1 Week 4 4.1 The two conditions are given...

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1 Week 4 4.1 The two conditions are given below: When it is required that one of the defined alternatives be selected (such as for legal purposes) When each alternative has only cost cash flow estimates. 4.2 We can evaluate the project based on present worth if they are i) Independent or ii) Mutually exclusive. Independent: For independent projects, select all that have PW ≥ 0 Alternatives that are mutually exclusive: For mutually exclusive projects, select the one that has the highest numerical PW value. 4.7 We need to find out the present worth of both the projects i.e., solar and power line. The one which gives a lower cost will be chosen. So, PW solar = -14,000 - 1500(P/A,10%,4) + 0.25(14,000)(P/F,10%,4) = -14,000 - 1500(3.1699) + 3500(0.6830) = $-16,364 PW line = -12000 – 600(P/A, 10%, 4) = -12000 – 600(3.1699) = $-13,902 So, we will install a power line. As its cost is lower as compared to solar. 4.10 The costs associated with manufacturing a multi-function portable gas analyzer are estimated. At an interest rate of 8% per year and a present worth analysis, we need to calculate the cost of both methods and then make an optimal decision.

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