case study

A project engineer is assigned to provide computer networking and internet access to an office building. After research various equipment suppliers two alternatives are detailed for further economic analysis. Alternative A is a wireless network with lower acquisition costs but higher operational costs. Alternative B is a wired network with low operational costs but higher equipment and installation costs. The costs associated with each of two alternatives are outlined below.

Alternative A Wireless Network Alternative B Wired Network Design $1,000 Design $2,000 Equipment $1,000 Equipment $2,000 Installation $ 500 Installation $2,000 Upgrades $500 per year Upgrades $0 M & O* $500 per year M & O* $100 per year Salvage $200 Salvage $100 Service Life 6 years Service Life 9 years

* Maintenance and Operation

Q. Using the information provided above, determine which alternative to recommend using Present Worth analysis. Conduct the analysis twice, once for the least common multiple of the service lives and once using a five year study period. Assume a 10% interest rate.