Alternative Comparison—
Equal Lives
Q1
You have been asked to evaluate two alternatives, X and Y, that
may increase plant capacity for manufacturing high-pressure
hydraulic hoses. The parameters associated with each
alternative have been estimated. Which one should be selected
on the basis of a present worth comparison at an interest rate of
12% per year?
Q2
One of two methods must be used to produce expansion anchors.
Method A costs $80,000 initially and will have a $15,000 salvage
value after 3 years. The operating cost with this method will be
$30,000 per year.
Method B will have a first cost of $120,000, an operating cost of
$8000 per year, and a $40,000 salvage value after its 3-year life.
At an interest rate of 12% per year, which method should be used
on the basis of a present worth analysis?
Q3
A company that makes food-friendly silicone (for use in cooking
and baking pan coatings) is considering the independent
projects shown, all of which can be considered to be viable for
only 10 years. If the company’s MARR is 15% per year,
determine which should be selected on the basis of a future
worth analysis. Financial values are in $1000 units.
Alternative Comparison—
Different Lives
Q4
NASA is considering two materials for use in a space vehicle
tracking station in Australia. The estimates are shown below.
Which should be selected on an economic basis of present worth
values at an interest rate of 10% per year?
Q5
Three different plans were presented to the GAO (General Accounting Office) by a high-tech facilities
manager for operating a portable cyber-security facility.
Plan A: Renewable 1-year contracts with payments of $1 million at the beginning of each year.
Plan B: A 2-year contract that requires three payments of $600,000 each, with the first one to be made
immediately and the second and third payment made at the beginning of the following two 6-month
intervals; no payments required during the second year of the contract.
Plan C: A 3-year contract that entails a payment of $1.5 million now and another payment of $0.5 million 2
years from now
Assuming the GAO can renew any of the plans under the same conditions, if it decides to do so, which plan is
best on the basis of a present worth analysis at an interest rate of 6% per year, compounded
semiannually?
Capitalized Cost
Q6
Compare three alternatives on the basis of their capitalized
costs at i = 10% per year.
Q7
Beaver, a city in the United States, is attempting to attract a
professional soccer team. Beaver is planning to build a new stadium
that will cost $250 million. Annual upkeep is expected to amount to
$800,000.
The turf will have to be replaced every 10 years at a cost of $950,000.
Painting every 5 years will cost $75,000.
If the city expects to maintain the facility indefinitely, what is the
estimated capitalized cost at i = 8% per year?
