Answer:
Alternative B has a higher annual worth
Explanation:
project A B C
initial outlay $30,000 $60,000 $50,000
units sold 15,000 20,000 18,000
selling price $3.50 $4.40 $4.10
var. costs $1 $1.40 $1.15
fixed expenses $15,000 $30,000 $26,000
salvage value $0 $20,000 $15,000
useful life 10 years 10 years 10 years
contribution $2.50 $3 $2.95
margin per unit
NCF 1 - 9 $22,500 $30,000 $27,100
NCF 10 $22,500 $50,000 $42,100
annual worth A = [-$30,000 x .2385 (A/P, 20%, 10 years)] + $22,500 = $15,345
annual worth B = [-$60,000 x .2385 (A/P, 20%, 10 years)] + $30,000 + [$20,000 x .0385 (A/F, 20%, 10 years) = $16,460
annual worth C = [-$50,000 x .2385 (A/P, 20%, 10 years)] + $26,000 + [$15,000 x .0385 (A/F, 20%, 10 years) = $14,652.50
