E1 Compare the alternatives below using Future Worth analysis and applying an interestrate of 8% per year.Alternative PFirst cost: $-23,000Annual operating cost: $-4,000 per yearSalvage value: $3,000Life, years: 3Alternative QFirst cost: $-30,000Annual operating cost: $-2,500 per year Alternative QFirst cost: $-30,000Annual operating cost: $-2,500 per yearSalvage value: $1,000Life, years: 6Select Alternative P because it costs less in calculated FW terms.Select Alternative Q because it costs less in calculated PW terms.Select either Alternative because they are economically equivalent at i =8%/year.Cannot determine an answer because FW analysis cannot be used for different-life alternatives.

Information Provided: Interest rate = 8% Alternative P: Initial cost = -$23,000 Annual operating…

Answered: Compare the alternatives below using…

Business

Finance

Compare the alternatives below using Future Worth analysis and applying an interest rate of 8% per year.

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter1: Understanding Personal Finance

Section1.4: Perform Time Value Of Money Calculations

Problem 3CC

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Concept explainers

Stock Market Indices

Stock indexes are used to compare the price fluctuations of a group of stocks of similar companies, which are combined based on a similar industry or a particular market capitalization limit or type of market. The price comparison is based on a pre-determined standard method or indicators. These stock indexes are usually considered a base for comparison of a particular stock, and the performance of that particular company can be easily determined.

Question

Compare the alternatives below using Future Worth analysis and applying an interest
rate of 8% per year.
Alternative P
First cost: $-23,000
Annual operating cost: $-4,000 per year
Salvage value: $3,000
Life, years: 3
Alternative Q
First cost: $-30,000
Annual operating cost: $-2,500 per year

Alternative Q
First cost: $-30,000
Annual operating cost: $-2,500 per year
Salvage value: $1,000
Life, years: 6
Select Alternative P because it costs less in calculated FW terms.
Select Alternative Q because it costs less in calculated PW terms.
Select either Alternative because they are economically equivalent at i =
8%/year.
Cannot determine an answer because FW analysis cannot be used for different-
life alternatives.

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