PE 1 Economic Analysis ALTERNATIVE 1 Question 1-5 Reoccurring Lease payment $300 per month * 12 months= $3,600 per year MIDNIGHT DAY 0 MIDNIGHT DAY 365 MIDNIGHT DAY 730 MIDNIGHT DAY 1,095 MIDNIGHT DAY 1,460 MIDNIGHT DAY 1,825 YR 0 YR 1 YR 2 YR 3 YR 4 YR 5 1-----------------365 366-------------730 731-------------1,095 1,096--------1,460 1,461---------1,825 $0 $3,600 $3,600 $3,600 $3,600 $3,600

Question 5 fill out Format A for Alternative 1 Leasing Computers Computers needed to handle manual work Alternative 1 5 years $0 $0 $0 1.000 $0 1 $0 $3,600 $3,600 0.909 $3,272 2 $0 $3,600 $3,600 0.826 $2,974 Question 5 fill out Format A for Alternative 1 3 $0 $3,600 $3,600 0.751 $2,704 4 $0 $3,600 $3,600 0.683 $2,459 5 $0 $3,600 $3,600 0.621 $2,236 $0 $18,000 $18,000 3.790 $13,644 $13,644 $3,600 $0 $0 $13,644 $3,600

PE 1 Economic Analysis ALTERNATIVE 2 Buying Equipment QUESTION 1-5 YR 0 = $11,500 = $10,000 initial outlay + $1,500 installation End of YR 1 = $500= one time training cost Recurring end of each year = $1,000 annually for maintenance End of year YR 5 Terminal Value / Salvage value (-$2,000) YR 0 YR 1 YR 2 YR 3 YR 4 YR 5 $11,500 $500 $1,000 $1,000 $1,000 $1,000 $1,000 ($2,000)

Question 5 fill out Format A for Alternative 2 Buying Computers Computers needed to handle manual work Alternative 2 5 years $11,500 $0 $11,500 1.000 $11,500 1 $500 $1,000 $1,500 0.909 $1,364 2 $0 $1,000 $1,000 0.826 $826 Question 5 fill out Format A for Alternative 2 3 $0 $1,000 $1,000 0.751 $751 4 $0 $1,000 $1,000 0.683 $683 5 $0 $1,000 $1,000 0.621 $621 $12,000 $5,000 $17,000 3.790 $15,745 $15,745 $4,154 $2,000 0.621 ($1,242) $14,503 $3,827

Question 6 (Line 10b & 12b) Uniform annual cost PE 1 Economic Analysis ALTERNATIVE 2 Buying Equipment Question 6 (Line 10b & 12b) Uniform annual cost YR 0 YR 1 YR 2 YR 3 YR 4 YR 5 $10,000 $500 $1,000 $1,000 $1,000 $1,000 $1,500 $1,000 Line 10b= line 10a (Total Discounted annual cost or Total Project Cost discounted) / cumulative factor ($2,000) When we are doing line 10b & 12b we are trying to “force” our final answer into a series of even annual amounts. In line 10b we do NOT include any terminal / salvage value. In line 12b we DO include any terminal / salvage value. In this case, it is not as easy so we have to “force” it into an annual series Line 10b = $15,745 / 3.790 = $4,154 Line 12b= line 12a (Net total project cost discounted) / cumulative factor Line 12b = $14,503/ 3.790 = $3,827

PE 1 Economic Analysis ALTERNATIVE 2 Buying Equipment Question 6 (Line 10b) Uniform annual cost WITHOUT Terminal Value YR 0 YR 1 YR 2 YR 3 YR 4 YR 5 $10,000 $500 $1,000 $1,000 $1,000 $1,000 $1,500 $1,000 $11,500 $1,500 Total Discounted annual cost or Total Project Cost discounted = $15,745 (From Line 10a on Format A for Alternative 2) YR 0 YR 1 YR 2 YR 3 YR 4 YR 5 $0 $4,154 $4,154 $4,154 $4,154 $4,154 Total Discounted annual cost or Total Project Cost discounted = annual amount * Column B factor = $4,154 * 3.790 = $15,744 (how it looks if “forced” into equal annual amounts w/o Terminal Value)

PE 1 Economic Analysis ALTERNATIVE 2 Buying Equipment Question 6 (Line 12b) Uniform annual cost WITH Terminal Value YR 0 YR 1 YR 2 YR 3 YR 4 YR 5 $10,000 $500 $1,000 $1,000 $1,000 $1,000 $1,500 $1,000 ($2,000) -$2,000 $11,500 $1,500 ($1,000) -$1,000 Net total project cost discounted = $14,503 (From line 12a on Format A for Alternative 2) YR 0 YR 1 YR 2 YR 3 YR 4 YR 5 $0 $3,827 $3,827 $3,827 $3,827 $3,827 NPV = annual amount * Column B factor = $3,827 * 3.790 Net total project cost discounted = $14,504 (how it looks if “forced” into equal annual amounts with Terminal Value)