Question

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a first cost of $10,000 and annual7-65 benefits of $4500. Alternative B costs $25,000 and has annual benefits of $8800. If the minimum attractive rate of return is 6%, which alternative should be selected

Answer 1

Alternative B should be selected since its NPV is higher

Step-by-step explanation:

year cash flow alternative A cash flow alternative B

0 -10000 -25000

1 4500 8800

2 4500 8800

3 4500 8800

4 4500 8800

5 4500 8800

6 4500 8800

7 4500 8800

8 4500 8800

9 4500 8800

10 4500 8800

discount rate 6% 6%

NPV 23120 39769