6-50. Consider these mutually exclusive alternatives.

MARR = 8% per year, so all the alternatives are acceptable. (6.5)

Alternative A B C Capital investment $250 $375 $500

(thousands)

Uniform annual savings $40.69 $44.05 $131.90

(thousands)

Useful life 10 20 5

(years)

Computed IRR 10% 10% 10%

(over useful life)

a. At the end of their useful lives, alternatives A and C will be replaced with identical replacements (the repeatability assumption) so that a 20-year service requirement (study period) is met. Which alternative should be chosen and why?

b. Now suppose that at the end of their useful lives, alternatives A and C will be replaced with replacement alternatives having an 8% internal rate of return. Which alternative should be chosen and why? (Note: This assumption allows MEAs to be directly compared with the PW method over their individual useful lives—which violates the repeatability assumption implicit to Chapter 6.)