Which alternative has the lower cost

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A small town needs to upgrade the town dump to meet environment standards. Two alternatives are being considered. Alternative A has a first cost of €4,20,000 and annual operating and maintenance costs of €52,500. Alternative B has a first cost of €3,15,000 and annual operating and maintenance costs of €7 4,000. Both alternatives have 15-year lives with no salvage. An increase in dumping fees for households and businesses in the town is expected to yield €50,000 per year.

(a) Which alternative has the lower cost if the ALARR is 5%? Use annual worth.

(b) Which alternative has the lower cost if the ALARR is 20%? Use annual worth.

(c) The after-tax return on government savings bonds is 5 %. The average rate of return before taxes in private sector investment is 20%. Which alternative should be chosen?

Reference no: EM131374822

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