A medium-size municipality plans to develop a software system to assist in project selection during the next 10 years. A life-cycle cost approach has been used to categorize costs into development, programming, operating, and support costs for each alternative. There are three alternatives under consideration, identified as A (tailored system), B (adapted system), and C (current system). Use an annual life-cycle cost approach to identify the best alternative at 8% per year.
What will be an ideal response?
PW of LCC A = -250,000 – 150,000(P/A,8%,4) – 45,000 – 35,000(P/A,8%,2)
-50,000(P/A,8%,10) – 30,000(P/A,8%,5)
= -250,000 – 150,000(3.3121) – 45,000 – 35,000(1.7833)
-50,000(6.7101) – 30,000(3.9927)
= $-1,309,517
AW of LCC A = -1,309,517(A/P,8%,10)
= -1,309,517(0.14903)
= $-195,157
PW of LCC B = -10,000 – 45,000 - 30,000(P/A,8%,3) – 80,000(P/A,8%,10)
- 40,000(P/A,8%,10)
= -10,000 – 45,000 - 30,000(2.5771) – 80,000(6.7101) - 40,000(6.7101)
= $-937,525
AW of LCC B = -937,525(A/P,8%,10)
= -937,525(0.14903)
= $-139,719
PW of LCC C = -175,000(P/A,8%,10)
= -175,000(6.7101)
= $-1,174,268
AW of LCC C = -1,174,268(A/P,8%,10)
= -1,174,268(0.14903)
= $-175,001
Select Alternative B (adapted system)
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