Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are give The decision-maker can select one of these alternatives or decide to select none of them. Make a recommendation bas Design Y Design Z Investment cost Annual revenue Annual cost Useful life Salvage value $140,000 $47,537 $9,809 15 years $14,700 $275,000 $91,161 $27,855 15 years $33,000
Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are give The decision-maker can select one of these alternatives or decide to select none of them. Make a recommendation bas Design Y Design Z Investment cost Annual revenue Annual cost Useful life Salvage value $140,000 $47,537 $9,809 15 years $14,700 $275,000 $91,161 $27,855 15 years $33,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two mutually exclusive design alternatives are being considered the estimated cash flow's for each alternative are given below. The MARR is 12% per year. The decision-maker can select one of these alternatives, or decide to select none of them make a recommendation based on the following methods.
Transcribed Image Text:Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given below. Th
The decision-maker can select one of these alternatives or decide to select none of them. Make a recommendation based on the fa
Design Y
Design Z
a. Based on PW method, Design z is more economical.
b. The modified B/C ratio of Design Y is
The modified B/C ration of Design Z is
Investment cost
Annual revenue
Annual cost
Useful life
Salvage value
Net PW
(Round to two decimal places)
(Round to two decimal places)
c. The incremental B/C ratio is (Round to two decimal places)
Therefore, based on the B/C ratio method, Design z is more economical
$140,000
$47,537
$9,809
15 years
$14,700
$119,646
d. The discounted payback period of Design Y is
The discounted payback period of Design Z is
years (Round to one decimal place)
years (Round to one decimal place)
Therefore, based on the payback period method, Design y would be preferred.
$275,000
$91,161
$27,855
15 years
$33,000
$162,198
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