Answer:
We need to calculate Net prasent vale of both the alternative as follow
| Alternative – A | ||||||
| Year | Construction Cost |
Benefit | Total Flow |
Prasent Valuue factor at 3.5% |
||
| A | B | C = A+B | D | C*D | ||
| 0 | -580,000 | -580,000 | 1 | -580000 | ||
| 1 | 250,000 | 250,000 | 0.966184 | 241545.9 | ||
| 2 | 250,000 | 250,000 | 0.933511 | 233377.7 | ||
| 3 | 250,000 | 250,000 | 0.901943 | 225485.7 | ||
| 4 | 250,000 | 250,000 | 0.871442 | 217860.6 | ||
| 5 | 250,000 | 250,000 | 0.841973 | 210493.3 | ||
| 6 | 250,000 | 250,000 | 0.813501 | 203375.2 | ||
| 7 | 250,000 | 250,000 | 0.785991 | 196497.7 | ||
| 8 | 250,000 | 250,000 | 0.759412 | 189852.9 | ||
| 1138489 | ||||||
| Alternative – B | ||||||
| Year | Construction Cost |
Benefit | Total Flow |
Prasent Valuue factor at 3.5% |
||
| A | B | C = A+B | D | C*D | ||
| 0 | -650,000 | -650,000 | 1 | -650000 | ||
| 1 | 350,000 | 350,000 | 0.966184 | 338164.3 | ||
| 2 | 350,000 | 350,000 | 0.933511 | 326728.7 | ||
| 3 | 350,000 | 350,000 | 0.901943 | 315679.9 | ||
| 4 | 350,000 | 350,000 | 0.871442 | 305004.8 | ||
| 5 | 350,000 | 350,000 | 0.841973 | 294690.6 | ||
| 6 | 350,000 | 350,000 | 0.813501 | 284725.2 | ||
| 7 | 350,000 | 350,000 | 0.785991 | 275096.8 | ||
| 8 | 350,000 | 350,000 | 0.759412 | 265794 | ||
| 1755884 | ||||||
| NPV | Amount in $ |
| Alternative – A | 1138488.88 |
| Alternative – B | 1755884.44 |
Conclusion ; As we can see that NPV of the project B is more so you can choose Alternative B
