Reference no: EM132008830

You are considering two devices A and B. For Device A the initial cost is $25,000 and lasts for 8 years. Device B costs $45,000 and lasts for 4 years. If Device B is to be bought after a period of 4 years, the price will go up by 20%. The salvage on all machines can be safely taken as 20% of the initial cost.

Device A has yearly expenses of $2,000 which are estimated to go up by $1,000 per year, and the first year benefits are estimated to be $22,000 which are estimated to go down by $1,000 per year over its 8 year life.

Device B has yearly expenses of $3,500 which are estimated to go up by $1,000 per year, and the first year benefits are estimated to be $27,000 which are estimated to go down by $1,000 per year over its 4 year life. The costs and benefits keep trending with the same pattern even when a new copy of the option is installed further from where the old copy's costs and benefits ended.

What would be the difference in the EUAW of the Device A and B over an 8 year project life if interest rate is 6% per year compounded yearly?

$1,339

$2,484

$3,853

$4,576