Capitalized cost method
Present worth method
Annual cost method
MARR
Answer is Right!
Answer is Wrong!
The correct answer is: B. Present worth method.
The present worth method is a technique used in engineering economics to compare alternatives that accomplish the same purpose but have unequal lives. It is based on the principle that a dollar today is worth more than a dollar in the future, because of the time value of money. The present worth of an alternative is the sum of the present values of all of its cash flows, discounted at a specified interest rate. The alternative with the lower present worth is the preferred alternative.
The other options are incorrect because:
- The capitalized cost method is a technique used to compare alternatives that have different lives. It is based on the principle that the present worth of an alternative is equal to its capitalized cost, which is the sum of its initial investment and the present worth of its future annual costs.
- The annual cost method is a technique used to compare alternatives that have different lives. It is based on the principle that the annual cost of an alternative is equal to its initial investment plus the present worth of its future annual costs, divided by the number of years of its life.
- MARR is the minimum attractive rate of return, which is the rate of return that an investor requires on an investment in order to be willing to make it. It is used in engineering economics to compare alternatives that have different levels of risk.