An engineering firm has identified five ways to cut costs in its main office. Only one of the options can be implemented, however, since each involves significant training time for staff engineers. Data are provided in the table. Each option has a lifetime of seven years, and the firm sets a MARR at 15%. Option A B C D E Capital cost ($ million) 2.713 0.375 1.650 0.088 0.950 Annual cost ($ million/yr 0.093 0.275 0.132 0.147 0.228 Annual benefit ($ million/yr) 0.890 0.288 0.841 0.312 0.505 a) Solve by present worth analysis. b) Solve by annual cash flow analysis. c) Solve by incremental benefit-cost ratio analysis. d) Solve by an incremental rate of return analysis using the full detailed procedure
An engineering firm has identified five ways to cut costs in its main office. Only one of the options can be implemented, however, since each involves significant training time for staff engineers. Data are provided in the table. Each option has a lifetime of seven years, and the firm sets a MARR at 15%. Option A B C D E Capital cost ($ million) 2.713 0.375 1.650 0.088 0.950 Annual cost ($ million/yr 0.093 0.275 0.132 0.147 0.228 Annual benefit ($ million/yr) 0.890 0.288 0.841 0.312 0.505 a) Solve by present worth analysis. b) Solve by annual cash flow analysis. c) Solve by incremental benefit-cost ratio analysis. d) Solve by an incremental rate of return analysis using the full detailed procedure
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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An engineering firm has identified five ways to cut costs in its main office. Only one of the
options can be implemented, however, since each involves significant training time for
staff engineers. Data are provided in the table. Each option has a lifetime of seven years,
and the firm sets a MARR at 15%.
Option
A B C D E
Capital cost ($ million) 2.713 0.375 1.650 0.088 0.950
Annual cost ($ million/yr 0.093 0.275 0.132 0.147 0.228
Annual benefit ($ million/yr) 0.890 0.288 0.841 0.312 0.505
a) Solve by present worth analysis.
b) Solve by annual cash flow analysis.
c) Solve by incremental benefit-cost ratio analysis.
d) Solve by an incremental rate of return analysis using the full detailed procedure
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