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Compare the alternatives below using Future Worth analysis and applying an interest rate of 8% per year.

Compare the alternatives below using Future Worth analysis and applying an interest rate of 8% per year.

Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 3CMA
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Compare the alternatives below using Future Worth analysis and applying an interest rate of 8% per year. Alternative P First cost: $-23,000 Annual operating cost: $-4,000 per year Salvage value: $3,000 Life, years: 3 Alternative Q First cost: $-30,000 Annual operating cost: $-2,500 per year
Transcribed Image Text:Compare the alternatives below using Future Worth analysis and applying an interest rate of 8% per year. Alternative P First cost: $-23,000 Annual operating cost: $-4,000 per year Salvage value: $3,000 Life, years: 3 Alternative Q First cost: $-30,000 Annual operating cost: $-2,500 per year
Alternative Q First cost: $-30,000 Annual operating cost: $-2,500 per year Salvage value: $1,000 Life, years: 6 Select Alternative P because it costs less in calculated FW terms. Select Alternative Q because it costs less in calculated PW terms. Select either Alternative because they are economically equivalent at i = 8%/year. Cannot determine an answer because FW analysis cannot be used for different- life alternatives.
Transcribed Image Text:Alternative Q First cost: $-30,000 Annual operating cost: $-2,500 per year Salvage value: $1,000 Life, years: 6 Select Alternative P because it costs less in calculated FW terms. Select Alternative Q because it costs less in calculated PW terms. Select either Alternative because they are economically equivalent at i = 8%/year. Cannot determine an answer because FW analysis cannot be used for different- life alternatives.
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