Compare different alternatives based on present worth

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Reference no: EM132803303

Question - Many valves are required in a certain pipeline that carries a corrosive chemical. In the past, cast iron valves have always been used and have required replacement every 2 years. Now valves of two corrosion-resistant alloys, A and B are available. Estimates of installed first costs, lives and salvage values for these three types of valve are as follows:

	Cast Iron	Alloy A	Alloy B
First cost	$2,000	$4,000	$6,000
Salvage value	zero	$1,000	Zero
Life	2 years	5 years	10 years

The only differences in annual disbursements for the three types of valve are in disbursements for income taxes. Income tax for each case will be 2.5% of the first cost.

Required -

a) Compare different alternatives based on present worth (PW), annual worth (AW), and future worth (FW) criterions, and explain your decision accordingly.

b) If the stipulated after-tax i* is 8%, which type of valve do you recommend? Would your answer be changed if the stipulated after-tax i* should be 12 %? Explain your reasoning.

Reference no: EM132803303

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