a. Based on PW method, Design Z is more economical.b. The modified B/C ratio of Design Y isThe modified B/C ration of Design Z is(Round to two decimal places)(Round to two decimal places)c. The incremental B/C ratio is (Round to two decimal places)Therefore, based on the B/C ratio method, Design Z is more economicald. The discounted payback period of Design Y isThe discounted payback period of Design Z isyears (Round to one decimal place)years (Round to one decimal place)Investment costAnnual revenueAnnual costUseful lifeSalvage valueNet PWTherefore, based on the payback period method, Design y would be preferred.(e) Why could the recommendations based on the payback period method be different from the other two methods?ⒸA. because the payback period method ignores the cash flows after the payback periodO B. because the payback period gives more weight to the cash flows after the payback periodCDesign YDesign Z$140,000 $275,000$57,659$96.354$17.618$31,68715 years$33,00015 years$14,700$135,399$171,467

Given Design Y Design Z Investment cost $140,000 $275,000 Annual revenue $57,659 $96,354…

Answered: a. Based on PW method, Design Z is more…

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter2: Productions Possibilities, Opportunity Costs, And Economic Growth

Section: Chapter Questions

Problem 17SQ

See similar textbooks

Related questions

Question

a. Based on PW method, Design Z is more economical.
b. The modified B/C ratio of Design Y is
The modified B/C ration of Design Z is
(Round to two decimal places)
(Round to two decimal places)
c. The incremental B/C ratio is (Round to two decimal places)
Therefore, based on the B/C ratio method, Design Z is more economical
d. The discounted payback period of Design Y is
The discounted payback period of Design Z is
years (Round to one decimal place)
years (Round to one decimal place)
Investment cost
Annual revenue
Annual cost
Useful life
Salvage value
Net PW
Therefore, based on the payback period method, Design y would be preferred.
(e) Why could the recommendations based on the payback period method be different from the other two methods?
ⒸA. because the payback period method ignores the cash flows after the payback period
O B. because the payback period gives more weight to the cash flows after the payback period
C
Design Y
Design Z
$140,000 $275,000
$57,659
$96.354
$17.618
$31,687
15 years
$33,000
15 years
$14,700
$135,399
$171,467

Expert Solution

Step 1

Given

	Design Y	Design Z
Investment cost	$140,000	$275,000
Annual revenue	$57,659	$96,354
Annual Cost	$17,618	$31,687
Useful life	15 years	15 years
Salvage value	$14,700	$33,000
NPV ( Net present worth or value)	$135,399	$171,467

The design which has a higher net present worth will be more economical.

The formula for modified B/C ratio:

$M o d i f i e d B / C = \frac{P W o f (B e n e f i t - a n n u a l \cos t)}{I n i t i a l \cos t}$

The formula for incremental B/C ratio: $\frac{∆ B}{∆ C}$

Note: “Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts for you. To get the remaining sub-part solved please repost the complete question and mention the sub-parts to be solved.”.

Step by step

Solved in 9 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions