Question
Two cost only alternatives are being considered by a firm that uses and interest rate of 10.5% to analyze options. Option A has an investment
Two cost only alternatives are being considered by a firm that uses and interest rate of 10.5% to analyze options. Option A has an investment of 1.260 million and annual cost of 118,000. Option B has an investment of 1.412 million and annual cost of 89,000. Both are expected to be usable for 10 periods. Since these are cost only alternatives cost will be treated as a positive number for reporting.
a. What is the NPW of cost for option A?
b. What is the NPW of cost for option B?
c. If the firm uses financial analysis to guide decisions, which alternative is preferred?
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