The withit corporation is considering two alternatives

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3) The Withit Corporation is considering two alternatives for automating their machine-parts operation.  Alternative 1 requires an initial investment of $70,000 and decreasing yearly O&M costs as shown in the table below.  It has a five-year life span.  Alternative 2 requires an initial investment of $90,000 and has annual yearly costs of $500 over a ten-year life span. Both machines have zero salvage value.  Assume an interest rate of 10%.

Calculate the NPV and IRR for each alternative.  How would you compare the two?

Year

Alternative 1

Alternative 2

0

-$70

-$90

1

-10

-0.5

2

-8

-0.5

3

-6

-0.5

4

-4

-0.5

5

-2

-0.5

6

 

-0.5

7

 

-0.5

8

 

-0.5

9

 

-0.5

10

 

-0.5

(All values in $1,000)

Reference no: EM13962736

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