An economic evaluation of the following mutually exclusive alternatives is being conducted. Since they have different service lives, repeatability is assumed and an analysis period of 18 years is used. The MARR is 12%. Initial cost Annual revenues Service life (years) Alternative A $30,000 $15,000 6 Alternative B $110,000 $30,000 9 Answer the following two questions: (1) The net AW of Alternative B over the analysis period is (select the closest value) A. $-346 B. $9,355 OC. $50.645 O D. $14,827 (2) The net PW of Alternative B over the analysis period is (select the closest value) OA. $67,821 OB. $49,846 C. $107,490 OD. $-2,510

An economic evaluation of the following mutually exclusive alternatives is being conducted. Since they have different service lives, repeatability is assumed and an analysis period of 18 years is used. The MARR is 12%. Initial cost Annual revenues Service life (years) Alternative A $30,000 $15,000 6 Alternative B $110,000 $30,000 9 Answer the following two questions: (1) The net AW of Alternative B over the analysis period is (select the closest value) A. $-346 B. $9,355 OC. $50.645 O D. $14,827 (2) The net PW of Alternative B over the analysis period is (select the closest value) OA. $67,821 OB. $49,846 C. $107,490 OD. $-2,510

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A project is being planned that has an initial investment at time 0, annual revenuesand expenses, and a salvage value at the end of the project lifespan (20 years). The financialvalues are summarized below:Initial investment amount at time 0 $150,000Estimated annual revenue $34,500 per yearEstimated annual expenses $8,700 per yearEstimated salvage value at end of lifespan $10,000Minimum attractive rate of return (MARR) 15%a. Calculate the capital recovery amount CR(i%).b. Using the annual worth (AW) method, determine whether purchasing the equipmentis economically justified.c. Repeat part (a) using the internal rate of return (IRR) method based on annual worth(AW).d. Using the present worth (PW) method, determine the break-even time period afterwhich purchase of the equipment generates a profit. (Find N when PW = 0) year period.
(b) Use the easiest technique to determine which one of the following alternatives should be selected. MARR = 10% and the chosen alternative is needed for 6 years. Write down any assumptions that you make. Alternative 1 2 Capital Investment Annual Revenues less Expenses Useful Life -$10,000 $6,000 -$15,000 $6,500 2 3
Evaluate the two alternatives A and B and decide the economic justified alternative using: Present worth method, Annual worth method, Future worth method I.R.R method , E.R.R Method .E.R.R.R method M.A.R.R=15%, the details of alternatives are shown in the table below Alternatives A B Investments $60,000 $75,000 Useful life (years) 5 15 Annual disbursements $25,000 $35,000 Annual revenues $45,000 $60,000 Salvage values $5,000 $10,000
The cash flows for three mutually exclusive alternatives are given in table below. MARR = 4%. ALB Alt. C 27,000 24,000 7,600 6,500 13% 11% Initial cost Annual benefits ROR Life in years Alt. A $15,000 $4,500 15% 5 Reference: Case Study 8 The best alternative for a MARR of 2.0% using the incremental rate of return analysis is A. Alt. C B. Alt. B C. Alt. A OD.Do-nothing
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:[A] { > Incremental analysis ([ B Alternative], [B wins ]): C A company considering 2 different machines at MARR at 12% Both life spans = 10 years Initial Cost Annual Operating lost Benefits per yin ar Salvage Value \table MM If you are and of frying investment to company decide More than 2 alternatives if the additional increment is worth while, compare Alternative: A Incremental analysis (Alternative) pairs then B C A MARR Company at Considering 2 different machines at 12% Both life spans = 10 years. M/C X м/с у Initial Cost 160000 285000 Annual Operating Cost Benefits per year Salvage Value 45 000 90000 45000 105000 20000 40000
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Consider two air-conditioning systems with the cash flow estimates as given below. Use AW analysis to determine the sensitivity of the economic decision to MARR values of 4%, 6%, and 8% per year. Air-Conditioning System 1 System First cost, $ AOC. $ per year Salvage valué, $ New compressor and motor cost at midlife, $ Life, years -9,000 -850 -100 Proy -2,200 8 The annual worth of air-conditioning system 1 when the MARR is 4% is $ The annual worth of air-conditioning system 2 when the MARR is 4% is $ The annual worth of air-conditioning system 1 when the MARR is 6% is $ The annual worth of air-conditioning system 2 when the MARR is 6% is $ 10 www Air-Conditioning System 2 -13,000 -105 -300 -3,140 12
A Cost $4000 $2000 $6000 $1000 $9000 Annual benefit 639 410 761 117 750 Useful life, in years 20 20 20 20 20 i* 15% 20% 11.1% 9.9% 5.45% Perform incremental ROR analysis to select best one. MARR=6%; (P/A, 6%, 20) = 11.47 %3D
Would love some help on how to approach this - thanks! The cash flows for three different alternatives are given in table below. MARR =10%. Alt. A Alt. B Alt. C Initial cost $5,000 9,000 7,500 Annual benefits $1,457 2,518 2,133 RoR 14% 13% 12.4% Life in years 5 1. ΔRoR for the first increment (Alt. C-Alt. A) is ___________________. A.10.12% B. 9.38% C. 11.85% D. 11.00% 2. ΔRoR for the second increment is ___________________. A. 10.12% B. 9.38% C. 8.94% D. 9.87% 3. The best alternative for a MARR of 10% using the incremental rate of return analysis is ____________. A. Alt. C B. Alt. A C. Alt. B D. Do nothing
The following data is available for three different alternatives. Assume an interest rate of 10% per year, compounded annually. Initial Cost Annual Benefit Useful Life (yrs) Alternative A 10,000 1,450 infinite OO Alternative B 11,000 1,930 10 Alternatives B and C are replaced at the end of their useful lives with identical replacements. Using present worth analysis, find the best alternative. Choose Alternative A because its net present worth is postive Choose Alternative A because it lasts the longest Alternative 20,000 6,707 5 Choose Alternative C because its net present worth is $9,807.17 more than its nearest competitor Choose Alterntive C because it has the highest annual benefit
Determine which alternative, if any, should be chosen based on Annual Worth method using 15% MARR. Use Repeatability Method. Alternative A B First Cost (Investment Cost) $ 5,000 $10,200 Uniform Annual Benefit $1,100 $2,300 Useful Life 5 years 10 years a. The Annual Worth of Alternative A is = $ Blank 1 b. The Annual Worth of Alternative B is = $ Blank 2 c. Choose Alternative (Type only A or B) = Blank 3 Note: Show final answer to the nearest WHOLE NUMBER. No need to write the Unit of Measure. Blank 1 Add your answer Blank 2 Add your answer Blank 3 Add your answer