Determine the better of the two alternatives using the present worth analysis. Use an interest rate of 10%.

Alt. X Alt. Y

Initial cost $12,500 $8,900

Annual benefit $6,800 $2,000

Salvage value $5,000 $8,900

Life in years 2 years 3 Years

MARR 10%

Alternative X gives a better net present worth of $3433.88 compared to Alternative Y with a present networth of $ 2,760.41  

Step-by-step explanation:

Using the present analysis which is also the net present value analysis,the net present of the two alternatives can be compared so as to  choose the project with the higher net present worth.

The net present is simply discounting the project cash flows in order to know their worth today as calculated below

Alternative X present net-worth

=-$12500+($6800*1/(1+10%)^1)+($6800+$5000)*1/(1+10%)^2=$ 3,433.88  

Alternative Y present net-worth

=-$8900+($2000*1/(1+10%)^1)+($2000*1/(1+10%)^2)+($2000+$8900)*(1/(1+10%)^3)=$2,760.41