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

Problem 2 – Using NPV benefit-cost ratio and incremental analysis, a 5 year useful life, and a 15% MARR, determine which one of the following alternatives should be selected. Why? A В D E Cost $200 $ 68 $100 $ 32 $125 $ 42 $150 $ 52 $225 $ 68 UAB

6. David is opening an Aerial Adventure Park. He has three mutually exclusive design alternatives: Capital investment Annual receipts Annual expenses Design A $175,000 $115,000 $70,000 Design B $350,000 $150,000 $80,000 Design C $300,000 $125,000 $70,000 Market values are negligible. A 10-year study period is to be used and the MARR is 10% per year. Use the FW Method to determine which alternative should be chosen.

Q4. The cash flow details of a public project is as follows Initial cost /investment BD 250000 Annual benefits/revenues = BD 120000 Worth of annual cost BD 12,000 Salvage value = BD 150000 Interest rate per year = 8% and useful lie = 30 Years Use the three project evaluation methods( PW, FW, AW) and put your decision after every solution. Prepare the cash flow diagram.

Data for problems 5 to 8 Data for four mutually exclusive alternatives are given in the table below. Assume a life of 6 years and a MARR of 10%, and EUAB stands for equivalent uniform annual benefit. Alt. A Alt. B Initial Cost EUAB $140 Salvage $40 Value $560 $340 OC1.45 OD079 $100 So Alt. C $120 $40 SO Alt. D Do SO SO SO Nothing The AB/AC ratio for the third increment, (A-B) is OA 0.94 OB. 0.89

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.

For the following alternatives compute the Delta B/C ratio of Alternative D minus Alternative A. Use 11% as MARR. (Remember for our convention, salvage value is a minus cost.) Project Initial Investment Annual Benefit Salvage Value Useful Life A B D -1500 -2000 -2500 -5200 350 500 600 850 320 610 820 2300 5 6 7 1.73 1.18 0.92 1.46 1.27

Consider four alternatives A, B, C, and D with their respective annual benefits, disbenefits, costs and savings. Alternative A В Benefits P180,000 P250,000 P300,000 P400,000 Disbenefits P42,000 P68,000 P92,000 P118,000 Costs P128,000 P184,000 P265,000 P288,000 Savings P16,000 P27,000 P38,000 P54,000 Calculate the B/C ratio and (B-C) criterion for each alternative. Using the incremental B/C ratio, determine which alternative should be selected. O Select Alternative A O Select Alternative C O Select Alternative B O Select Alternative D

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