An unavoidable cost may be met by outlays of $3000 now and $120 at the end of every six months for two years (Alternative 1) or by making monthly payments of $58 for six years (Alternative 2). Interest is 8% compounded annually. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion.

Answers:

The present value of Alternative 1 is $3436

The present value of Alternative 2 is $3334

The preferred alternative is alternative 2