An engineer has received two bids for an elevator to
be installed in a new building. Given a 10% interest
rate, which bid should be accepted?
Alternatives Westinghome Itis
Installed cost $45,000 $54,000
Annual cost 2700 2850
Salvage value 3000 4500
Life, in years 10 15
Can you help me with what present worth formula to use??
Yes, I can help you with that! To determine which bid should be accepted, we need to calculate the present worth of each bid.
To calculate the present worth, we will use the present worth formula. There are different present worth formulas based on the cash flow pattern. In this case, since the annual costs are the same for both bids, we can use the basic present worth formula:
Present Worth = Initial Cost - Salvage Value + Annual Cost * (1 - (1 + Interest Rate)^(-Life in years)) / Interest Rate
Let's calculate the present worth for both bids using this formula.