Discussion
A project with a first cost of 2 million, a 20-year life and annual benefits of 250 000, at 8 per cent, has annual costs of about
Answer: A
The capital recovery factor at 8 per cent for twenty years is 0.10185, and multiplying by 2 million gives 203 700. Comparison must be on the same basis, so the first cost is annualised rather than the benefits capitalised.
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