Potable water is in short supply in many countries. To address this need, two mutually exclusive water purification systems are being considered for implementation in China. Doing nothing is not an option. Assume the repeatability of cash flows for alternative 1.

a. Use the PW method to determine which system should be selected when MARR = 9% per year.

b. Which system should be selected when MARR = 18% per year?

Alternatives description:

System 1 System 2

Captial investment $100,000 $150,000

Annual revenues $50,000 $70,000

Annual expenses $25,000 $40,000

Market value at end of useful life $21,000 0

Useful life 5 years 10 years

IRR 12.7% 15.1%