Correct Answer - Option 3 : net annual worth analysis
Explanation:
(i) For comparing alternatives of different lives, most preferred method would be net annual worth analysis. If will in corporate all the expenditure and profits for equal span of time i.e. 1 year.
Net annual worth analysis:
(i) The annual equivalent amount is another basis for comparision that has characteristics similar to the present worth amount. The cash flow is converted in a series of equal annual by first calculating the present worth amount for the original and then multiplying it with capital recovery factor .
(ii) This comparision is made by seeing the annual equivalent amount of each alternative.
Break even analysis:
(i) The break-even analysis is the study of cost-volume-profit (CVP) relationship in which a chart is drawn between volume of production (Quantity) and income (Sales).
(ii) It refers to a system of determining that level of operations where the organisation neither earns profit nor suffer any loss i.e where the total cost is equal to total sales i.e the point of zero profit (Break-even point).
(iii) In a broader sense, it refers to a system of analysis that can be used to determine probable profit at any level of activity.
