A cost analysis is to be made to determine what, if anything, should be done in a situation offering three "do-something" and one "do-nothing" alternatives. Estimates of the cost and benefits are as follows.
Use a 10-year analysis period for the four mutually exclusive alternatives. At the end of 5 years, Alternatives 1 and 2 may be replaced with identical alternatives (with the same cost, benefits, salvage value, and useful life).
(a) If an 8% interest rate is used, which alternative should be selected?
(b) If a 12% interest rate is used, which alternative should be selected?