Question: Consider these two alternatives.
Alternative 1 Alternative 2
Capital investment $4,500 $6,000
Annual revenues $1,600 $1,850
Annual expenses $400 $500
Estimated market $800 $1,200 value
Useful life 8 years 10 years
a. Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 15% per year.
b. Determine the life of Alternative 1 for which the AWs are equal.