Use the present worth analysis method to determine which

Question

Use the present worth analysis method to determine which alternative (A or B) one should choose. Assume that the interest i = 8% per year.

                                         A                         B

First cost                         $5,500                 $11,000

Annual benefit                  $1,850                 $2,100

Salvage value                   $500                    $1,000

Useful life, in years            4                          8

(a) Compute the net present worth of alternative A.

(b) Compute the net present worth of alternative B.

(c) Which is the best option?