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 recommendatio based on the following methods. a. Based on PW method, Design is more economical. b. The modified B/C ratio of Design Y is The modified B/C ration of Design Z is (Round to two decimal places) (Round to two decimal places) (Round to two decimal places) c. The incremental B/C ratio is Therefore, based on the B/C ratio method, Design is more economical Investment cost Annual revenue Annual cost Useful life Salvage value Net PW Com Design Y Design Z $140,000 $275,000 $45,426 $86,819 $8,494 $28,551 15 years 15 years $14,700 $33,000 $144,427 $176,091

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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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.
a. Based on PW method. Design is more economical.
b. The modified B/C ratio of Design Y is
The modified B/C ration of Design Z is
(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
d. The discounted payback period of Design Y is
The discounted payback period of Design Z is
is more economical
years (Round to one decimal place)
years (Round to one decimal place)
Investment cost
Annual revenue
Annual cost
Useful life
Salvage value
Net PW
Therefore, based on the payback period method, Design would be preferred.
(e) Why could the recommendations based on the payback period method be different from the other two methods?
O A. because the payback period method ignores the cash flows after the payback period
O B. because the payback period gives more weight to the cash flows after the payback period
Design Y
Design Z
$140,000 $275,000
$45,426 $86,819
$8,494 $28,551
15 years
$14,700
15 years
$33,000
$144,427
$176,091
Transcribed Image Text: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. a. Based on PW method. Design is more economical. b. The modified B/C ratio of Design Y is The modified B/C ration of Design Z is (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 d. The discounted payback period of Design Y is The discounted payback period of Design Z is is more economical years (Round to one decimal place) years (Round to one decimal place) Investment cost Annual revenue Annual cost Useful life Salvage value Net PW Therefore, based on the payback period method, Design would be preferred. (e) Why could the recommendations based on the payback period method be different from the other two methods? O A. because the payback period method ignores the cash flows after the payback period O B. because the payback period gives more weight to the cash flows after the payback period Design Y Design Z $140,000 $275,000 $45,426 $86,819 $8,494 $28,551 15 years $14,700 15 years $33,000 $144,427 $176,091
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