Our example of a comparison of alternatives with different lives was the comparison of Plan D and Plan E using MARR of 8%.

Plan D Plan E

First cost $50,000 $120,000

Life 20 years 40 years

Salvage value $10,000 $20,000

Annual O&M Disburse. $9,000 $6,000

Extra annual income tax $1,250

1. Check whether the measure of worth (PW, AW, i*) values given below are correct based on the best estimates (most likely values) of parameters,

Plan D Plan E

Equivalent Uniform Annual Cost $ 13,874 $ 17,236

Present Worth $ 165,443 $ 205,553

The prospective after-tax rate of return on the extra investment in Plan E was computed to be approximately 2.7%.

2. Plot present value profiles of both alternatives and find the break-even value for MARR, and interpret your decision based on the break-even value accordingly.
3. Decide on the value of initial investment required for Plan E, which will make two alternatives (Plan D and Plan E) equivalent.
4. Decide on the salvage value required for Plan E that will make two alternatives equivalent.
5. Decide on the annual and operating disbursements required for Plan E that will make two alternatives equivalent (Can use Excel-Solver for parts b, c, and d).
6. Perform sensitivity analysis to indicate the sensitivity of your decision to the possible changes occurred in the

• MARR (0-15%) by keeping the lifetimes, first costs, annual disbursements, and the salvage values as the same,
• Estimated life of plan of Plan D (20-40 years) by assuming the same amount of salvage value at the end of lifetimes, and keeping the first costs, annual disbursements, salvage values, and the MARR of 8% as the same,
• Annual income tax of Plan E ($1250-1900) by keeping the first costs, salvage values, lifetimes, and the MARR of 8% as the same.
• The salvage value of Plan E ($20000-40000) by keeping the lifetimes, first costs, annual disbursements, lifetimes, and the MARR of 8% as the same.