1. PERFORM ECONOMIC ANALYSIS
PRACTICAL EXERCISE 5
STUDENT INSTRUCTIONS
OBJECTIVE: This practical exercise is designed to test your knowledge of Format A. Format A will give you Uniform Annual Cost with and without terminal value (or salvage value).
MATERIALS NEEDED:
# 2 Pencil
Summary Sheet - Economic Analysis (10% discount factor table is in the EA summary sheet).
Calculator - Does not have to be a financial calculator.
Practical exercise # 2 worksheet
INSTRUCTIONS:
All situations have one correct answer (beware of rounding, if you get an answer not exactly like the solution, it could be due to rounding).
You will be required to read and determine the important information (highlight) and develop a timeline.
This practical exercise will take 30 minutes (0.5 hours) to complete.
PROBLEM:
You work in the S2, security section of your division. Your co-worker, Mr. Smith, recently completed an economic analysis for purchasing two (2) different large scale shredders for secret documents – the Dunder Mifflin Shredder Version 2.0 and Skynet T-800 Shredder. Due to a computer system virus, all the electronic files for this economic analysis have been lost.
 Mr. Smith is away on leave and can not be reached. You were able to find a hard copy of Mr. Smith’s analysis, but the pages were stained with coffee. You are confident the parts you can read are correct.
Your boss has asked you for help. The commander needs the below questions in 20 minutes, so there is no time to totally re-do all the work. The last person that missed one of the commander’s deadlines was fired.
You know that the economic life for the machines is 4 years. You know the salvage value for the Dunder Mifflin Shredder Version 2.0 is $500. You know the terminal value for the Skynet T-800 Shredder is $750.
Using a 10% discount rate and end of year interest tables, and the information provided below answer the below questions  4

2. 1. What is the Uniform Annual cost without terminal value for Alternative 2?
$5,191
2. What is the Uniform Annual cost without terminal value for Alternative 1?
$4,864
3. What is the total discounted annual cost for Alternative 2?
$16,450
4. Based on Uniform Annual cost with terminal value, which alternative would you choose?
Alternative 1—Dunder Mifflin has a lower Uniform Annual Cost with terminal value
Alternative 1: Dunder Mifflin Uniform Uniform Annual Cost with terminal value = $4,756
Alternative 2: Skynet Uniform Annual Cost with terminal value = $5,029