Consider the following two mutually exclusive alternatives:
Alternative 1 Alternative 2
Cost $8,000 $13,500
Uniform annual benefit 1,200 1,900
Useful life, in years forever 15
Alternative 2 may be replaced with an identical item every 15 years at the $13,500 cost and will have the $1,900 uniform annual benefit. Assume a 12% interest rate and you must use annual cash flow analysis. Which alternative is the best?