Consider the net cash flows (NCF) and salvage values (SV) shown below for each of the two feasible alternatives for an economic analysis. Alternatives 1 and 2 have lives of 3 and 5 years, respectively. Assume each alternative can be renewed indefinitely with the same NCF and SV profiles.

a. If the least-common-multiple-of-lives approach is used, specify the planning horizon and the complete set of cash flows for each alternative.

b. If the shortest life approach is used, specify the planning horizon and the complete set of cash flows for each alternative.

c. If a fixed planning horizon of 2 years is used, specify the complete set of cash flows for each alternative.

Transcribed Image Text:

Alternative 1 Alternative 2 EOY NCF1 SV1 NCF2 SV2 0 -$50,000 $50,000 -$80,000 $80,000 1 $25,000 $25.000 $35,000 $50,000 2 $30,000 $10,000 $45,000 $20,000 3 $35,000 $0 $50,000 $10,000 4 $55,000 $0 5 $60,000 $0