# Question & Answer: The Director of Health Services at MSU is working to select the better of two medical x-ray systems……

The Director of Health Services at MSU is working to select the better of two medical x-ray systems.

Alternative A Alternative B

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First Cost, \$ -250,000 -224000

Annual Operating Cost \$ per year -231,000 -235,000

Salvage Value \$ 50,000 10,000

Expected life, years 6 6

At 5% per year, which alternative should be selected?

A) Alternative A

b) Alternative B
c)
 Cannot be determined by the information given

Let us find out the present value of both alternatives :-

Alternative A :- – 250000 – 231000 * PVIFA ( 5 % , 6 years ) + 50000 * PVIF ( 5 % , 6 years )

-250000 – 231000 * 5.0757 + 50000 * 0.7462

-250000 – 1172487 + 37310 = ( 1385177 )

Alternative B :- – 224000 – 235000 * PVIFA ( 5 % , 6 years ) + 10000 * PVIF ( 5 % , 6 years )

-224000 – 235000 * 5.0757 + 10000 * 0.7462

-224000 – 1192790 + 7462 = ( 1409328 )

So, alternative A is better as its present value of cost is lower than alternative B.