AT&T considers rebuilding a central cell tower, which was destroyed by hurricane Sandy. The contractor showed some possible plans and the company narrowed it down to 2 alternatives with the following given data: Cash Flow Investment Annual O&M Cost Annual revenue Alternative 1 $4,500,000 $200,000 (Start from EOY1) $1,300,000 (Start from EOY2) Alternative 2 $3,500,000 $250,000 (Start from EOY1) $1,400,000 (Start from EOY2)
AT&T considers rebuilding a central cell tower, which was destroyed by hurricane Sandy. The contractor showed some possible plans and the company narrowed it down to 2 alternatives with the following given data: Cash Flow Investment Annual O&M Cost Annual revenue Alternative 1 $4,500,000 $200,000 (Start from EOY1) $1,300,000 (Start from EOY2) Alternative 2 $3,500,000 $250,000 (Start from EOY1) $1,400,000 (Start from EOY2)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:QUESTION 2:
AT&T considers rebuilding a central cell tower, which was destroyed by hurricane
Sandy. The contractor showed some possible plans and the company narrowed it down
to 2 alternatives with the following given data:
Cash Flow
Investment
Annual O&M Cost
Annual revenue
Alternative 1
$4,500,000
$200,000
(Start from EOY1)
$1,300,000
(Start from EOY2)
Alternative 2
$3,500,000
$250,000
(Start from EOY1)
$1,400,000
(Start from EOY2)
Transcribed Image Text:At a MARR of 18% and program life of 20 years, calculate the following:
a. Calculate the BCR for each program option
USE PRESENT WORTH ANALYSIS
b. Using incremental benefit cost analysis, which program should be selected and
why?
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Step 1: Determine the given information:
VIEWStep 2: Determine the present worth of benefits and costs for alternative 1
VIEWStep 3: Determine the present worth of benefits and costs for alternative 2:
VIEWStep 4: Determine the BCR of each alternatives:
VIEWStep 5: Determine the incremental BCR:
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