Example 9-3 Choose the best option using the B/C analysis. Each project has a service life of 20 years and assume a 6% interest rate and a budget of $5,000. A B C DE F Cost $4,000 $2,000 $6,000 $1,000 $9,000 $10,000 PW of Benefit $7,330 $4,700 $8,730 B/C 1.83 2.35 1.46 1.34 $1,340 $9,000 $9,500 1.0 0.95

For this problem, consider the five mutually exclusive investment alternatives, A through E, with incremental analysis. Do nothing is not an alternative. |A C Capital $55,000 $90,000 $45,000 $30,000 $70,000 investment Annual $30,000 $40,000 $25,000 $15,000 $35,000 expenses Annual $50,000 $52,000 $38,000 $29,000 $45,000 revenues Market value at $10,000 $15,000 $10,000 $11,000 $15,000 ΕΟΥ 10 IRR ??? 7.4% 26.7% 46.0% 9.2% Useful Life in 10 |10 10 10 10 years When applying incremental analysis, the base alternative is identified, and then the first incremental comparison should be which of the following? Assume the MARR=10%. Choose the correct answer below. The first letter is the base alternative and the second letter is the next alternative in the analysis. A. D - C В. Е - D C. E - A D. D - B E. D - A

6.1 A dam is proposed on a stretch of wild river, a river that is currently used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years, after which its reservoir will be full of sediment and the dam will need to be removed. The following are characteristics of the dam: Initial Cost: $100,000,000 Electricity produced: 100,000 MWh per year at $100/Mwh Cost of decommissioning dam: $10,000,000 Value of recreation lost: $5,000,000 per year Assume that costs and benefits accrue at the end of each period. a. If the social discount rate is 3% per year, is the dam a good idea? b. If the social discount rate is 10% per year, is the dam a good idea? c. Calculate the "cutoff" discount rate, c, such that the dam is a good idea for discount rates rc and a bad idea for discount rates r > c.

4. Using the incremental B / C analysis (∆B/C). Determine the best alternative.5. Using the incremental rate of return (∆RoR) analysis. Determine the best alternative. MARR =10%.                                    A           B             C             DFirst cost                45,000   $25,000   $35,000   $15,000O &M Cost/year      $4,000    $1,500    $3,000      $2,000Benefit/year            $15,000   $9,500    $14,000    $8,000Salvage value         $9,000     $5,000    $7,000      $3,000Life in years              10

1) Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (∆RoR) analysis. MARR =10%

A city government is considering increasing the capacity of the current wastewater treatment plant. The estimated financial data for the project are as follows: Calculate the benefit-cost ratio for this capacity expansion.

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Engineering Econ HW7 Q1

IC OM B D Life/years X Z Y X $320,000 $45,000 $110,000 $20,000 10 W Y $540,000 $35,000 $150,000 $45,000 20 Based on the above ME alternatives and using the B/C analysis, which alternative we should select?i=10%. Z $300,000 $50,000 $80,000 $10,000 10 W $330,000 $20,000 $95,000 $30,000 20 V $250,000 $40,000 $90,000 $10,000 15

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