Two Alternatives Have Been Proposed for a Government Project

Essay

Two alternatives have been proposed for a government project. The estimated costs associated with each alternative are given below. Use the modified B- C ratio method, with AW as the equivalent- worth measure, to determine which alternative should be selected at an interest rate of 3% per year.
$$\begin{array} { | l | c | c | } \hline & \text { Alternative I } & \text { Alternative II } \\\hline \text { Initial cost, } \$ & \$ 1,250,000 & \$ 1,050,000 \\\hline \text { Annualmaintenance, } \$ / y r & \$ 180,000 & \$ 125,000 \\\hline \text { Annual benefits, } \$ / y r & \$ 550,000 & \$ 540,000 \\\hline \text { Salvage value, } \$ & \$ 11,000 & \$ 9800 \\\hline \text { Projectlife, years } & 28 & 28 \\\hline\end{array}$$ $$\begin{array} { | l | c | c | } \hline & \text { Alternative I } & \text { Alternative II } \\\hline \text { Iritialcogt, } \$ & \$ 1,250,000 & \$ 1,050,000 \\\hline \text { Arrualmaintenance, } \$ / y r & \$ 180,000 & \$ 125,000 \\\hline \text { Arrualberefitg, } \$ / y r & \$ 550,000 & \$ 540 ,000 \\\hline \text { 5alvage value, } \$ & \$ 11,000 & \$ 9800 \\\hline \text { Project life, yearg } & 28 & 28 \\\hline\end{array}$$ $\begin{array}{|l|c|c|}\hline&\text { Alternative I}&\text { Alternative II}\\\hline \text { itial cost, } \$ & \$ 1,250,000 &\$ 1,050,000\\\hline \text { nnual maintenance, } \$ / y r & \$ 180,000 &\$ 125,000\\\hline \text { nnual benefits, } \$ / y r & \$ 550,000&\$ 540,000 \\\hline \text { lvage value, } \$ & \$ 11,000& \$ 9800 \\\hline \text { oject life. vears } & 28& 28\\\hline\end{array}$