cost or choose the alternative with the highest present worth or profit. To employ this method,
you begin by calculating the equivalent present value of all cash flow. For the example problem
mentioned, the application of the present worth analysis leads to:Alternative A:
The interest – time factors fori8% are given in Table 20.8.
Alternative B:
PW113,550.40
PW85,000 13400 120021 6.71008140 2 50001 0.46319349 2
PW85,000 13400 120021 P /A, 8%, 10 2 50001 P /F, 8%, 10 2
PW118,853.35
PW100,000 12500 100021 6.71008140 2 1 10,000 21 0.46319349 2
PW100,000 12500 100021 P /A, 8%, 10 2 10,000 1 P /F, 8%, 10 2
20.9 Choosing the Best Alternatives —Decision Making 673
$85,000
Alternative B
$4600
$5000
0 1 2 3 4 5 6 7 8 910
$100,000
Alternative A$3500
$10,000
0 1 2 3 4 5 6 7 8 910
■Figure 20.6 The cash-flow diagrams for the example problem.
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