Consider the Three Mutually Exclusive Alternatives Below

question 26

Essay

Consider the three mutually exclusive alternatives below. At the end of their useful lives, alternatives X and Z will be replaced with identical replacements so that a 10- year service requirement is met. If the MARR is 3% per year, which alternative (if any) should be chosen? $$\begin{array} { | l | l | l | l | } \hline \text { Alternative } & X & Y & Z \\\hline \text { Capital Investment } & \$ 300,000 & \$ 425,000 & \$ 500,000 \\\hline \text { Annual savings } & \$ 68,750 & \$ 108,750 & \$ 188,750 \\\hline \text { Salvage value } & \$ 90,000 & \$ 125,000 & \$ 140,000 \\\hline \text { Life, years } & 10 & 20 & 5 \\\hline\end{array}$$

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Definitions:

Inflation

The pace at which overall prices for products and services escalate, causing the value of money to decline.

Unemployment

The condition of being capable and willing to work, but unable to find employment.

Money Supply

The complete aggregate of monetary assets in an economy at a certain moment.

Natural Rate of Unemployment

The level of unemployment consistent with a stable rate of inflation, determined by the structure and dynamics of the labor market.