A company is considering two alternatives to manufacture a particular part. Method R will have an initial cost of $40,000, annual operating costs of $25,000, and a salvage value of $10,000 after five years of life. Method S will have an initial cost of $100,000, an annual operating cost of $15,000, and a $12,000 salvage value after 10 years of life. Which alternative to choose with an annual interest rate of 12%?

2. Compare the alternatives shown below by present value comparison. Interest rate is 16% per annum:

Alternative I Alternative II
Initial Cost 147,000 56,000
Annual Cost 11,000 Year 1: 30,000 Year 1
inclusive $500 per year inclusive $1,000 per year
Salvage Value 5,000 2,000
Lives, Years 6 3

3. An alternative to manufacture a particular part has an initial cost of $50,000, an annual cost of $10,000, and a scrap value of $5,000 after 10 years of life. What is the capitalized cost of the alternative at an annual interest rate of 10%?

4. A congressman wants to know the capitalized cost of maintaining a proposed national park. The annual maintenance cost is expected to be $25,000. What is the capitalized cost of maintenance at an annual interest rate of 6%?

5. A dam will have an initial cost of $5,000,000, annual maintenance costs of $25,000, and minor rebuilding costs of $100,000 every five years. What is the capitalized cost of the dam at an annual interest of 8%?

6. Compare the alternatives shown below by capitalized cost, using an annual interest rate of 15%.
Alternative I Alternative II
Initial Cost 160,000 25,000
Annual Operating Cost 15,000 3,000
Salvage Value 1,000,000 4,000
Lives, Infinite Years 7