**Two Mutually Exclusive Design Alternatives**Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given below. The Minimum Attractive Rate of Return (MARR) is 10% 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.| | **Design Y** | **Design Z** ||-----------------------|--------------|---------------|| **Investment cost** | $140,000 | $275,000 || **Annual revenue** | $43,705 | $86,582 || **Annual cost** | $7,881 | $27,683 || **Useful life** | 15 years | 15 years || **Salvage value** | $14,700 | $33,000 || **Net PW** | $135,999 | $180,890 |### Recommendations:a. **Based on PW method**: Design ___ is more economical.b. **Modified B/C Ratio**: - The modified B/C ratio of Design Y is ___ (Round to two decimal places). - The modified B/C ratio of Design Z is ___ (Round to two decimal places).c. **Incremental B/C Ratio**: - The incremental B/C ratio is ___ (Round to two decimal places). - Therefore, based on the B/C ratio method, Design ___ is more economical.d. **Discounted Payback Period**: - The discounted payback period of Design Y is ___ years (Round to one decimal place). - The discounted payback period of Design Z is ___ years (Round to one decimal place). - Therefore, based on the payback period method, Design ___ would be preferred.### Additional Insight:e. **Why might the recommendations based on the payback period method differ from the other two methods?**- **A.** Because the payback period method ignores the cash flows after the payback period.- **B.** Because the payback period gives more weight to the cash flows after the payback period.

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Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given below. The MARR is 10% 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. Design Y Investment cost Annual revenue Annual cost Useful life Salvage value Net PW is more economical. a. Based on PW method, Design b. The modified B/C ratio of Design Y is The modified B/C ration of Design Z is $140,000 $43,705 $7,881 15 years $14,700 $135,999 Design Z $275,000 $86,582 $27,683 15 years $33,000 $180,890 (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 is more economical

Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given below. The MARR is 10% 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. Design Y Investment cost Annual revenue Annual cost Useful life Salvage value Net PW is more economical. a. Based on PW method, Design b. The modified B/C ratio of Design Y is The modified B/C ration of Design Z is $140,000 $43,705 $7,881 15 years $14,700 $135,999 Design Z $275,000 $86,582 $27,683 15 years $33,000 $180,890 (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 is more economical

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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