**Investment Decision Analysis: Evaluating Design Alternatives****Overview:**Two mutually exclusive design alternatives are evaluated based on their estimated cash flows. The Minimum Attractive Rate of Return (MARR) is set at 12% per annum. The decision-maker has the option to choose one of these alternatives or neither. The decision is informed using several financial methods.**Design Specifications:**- **Design Y:** - Investment Cost: $140,000 - Annual Revenue: $51,725 - Annual Cost: $9,672 - Useful Life: 15 years - Salvage Value: $14,700 - Net Present Worth (PW): $149,103- **Design Z:** - Investment Cost: $275,000 - Annual Revenue: $84,946 - Annual Cost: $18,059 - Useful Life: 15 years - Salvage Value: $33,000 - Net Present Worth (PW): $186,587**Recommendation Criteria:**a. **Present Worth (PW) Method:** - Determine which design has a higher PW value to determine economic efficiency.b. **Benefit-Cost (B/C) Ratio:** - Calculate the modified B/C ratio for both designs and round to two decimal places. - Decide which design is more economically favorable based on this ratio.c. **Incremental B/C Ratio:** - Compute the incremental B/C ratio and round to two decimal places. - Use this to conclude which design is more economical according to the B/C method.d. **Discounted Payback Period:** - Calculate the discounted payback period for both designs in years, rounded to one decimal place. - Select the preferred design based on this method.e. **Payback Period Method Consideration:** - Why might this method differ from other methods in its recommendations? - Option A: The method overlooks cash flows after the payback period. - Option B: The method places greater importance on cash flows following the payback period.These analyses will guide the decision-maker in determining the most economically viable design for implementation based on specified financial metrics and considerations.

Net Present Worth (NPW), also known as Net Present Value (NPV), is a financial metric used in…

Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given below. The MARR is 12% per year. The decision-maker can select one these alternatives or decide to select none of them. Make a recommendation based on the following methods. Design Y Design Z $140,000 $275,000 $51,725 $84,946 $9,672 $18,059 15 years $14,700 $149,103 Investment cost Annual revenue Annual cost Useful life Salvage value Net PW CU 15 years $33,000 $186,587

Two mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given below. The MARR is 12% per year. The decision-maker can select one these alternatives or decide to select none of them. Make a recommendation based on the following methods. Design Y Design Z $140,000 $275,000 $51,725 $84,946 $9,672 $18,059 15 years $14,700 $149,103 Investment cost Annual revenue Annual cost Useful life Salvage value Net PW CU 15 years $33,000 $186,587

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Most likely estimates for a project are as follows. MARR Useful life Initial investment Receipts -…

A: Initial Investment = 6500R-E = 1100 per yearn = 14,r = 10%

Q: A city is spending $19.5 million on a new sewage system. The expected life of the system is 30…

A: It is common on very large projects to calculate the Capitalized Cost of the project. This technique…

Q: Current Attempt in Progress A new solid waste treatment plant is to be constructed in Washington…

A: Capitalized cost is a concept often used in finance and accounting, particularly in the context of…

Q: Two designs are suitable for housing track and field events. Design N costs $800,000 with annual…

A: Design N:- Initial Cost = 800,000 Annual Cost = 25,000/ year life = Infinite Design T:- Initial…

Q: Alternative 1 Alternative 2 $3,000 $1,800 $1,000 $2,000 5 years $X $2,500 $1,200 $4,000 7 years…

A: Using repeatability, the LCM of the lives of two projects should be considered

Q: Select the appropriate bundle of proposals using capital budgeting method. Here MARR is 12% per year…

A: To determine the best combination of proposals using the capital budgeting method, given the…

Q: Empire Limited is trying to decide between two machines which are necessary in their manufacturing…

A: The measure that depicts the value of the expected stream of income being determined on the date of…

Q: Consider two air-conditioning systems with the cash flow estimates as given below. Use AW analysis…

A: The annual worth is the net of the multitude of advantages and costs brought about more than a…

Q: QUESTION 10 Save Answer Determine the capitalized cost of an alternative that has a first cost of…

A: (Note:- Since you have posted multiple questions as per our policy we will solve only first question…

Q: A city is spending $20.1 million on a new sewage system. The expected life of the system is 50…

A: Capitalized cost, also known as capitalized value, is a financial concept used in the analysis of…

Q: Consider the five investment alternatives described below. Which alternatives can be eliminated from…

A: Given that; There are 5 alternatives MARR = 10% life =5 Years The incremental internal rate of…

Q: To choose the best alternative among the given alternatives in the annual cash flow analysis method,…

A: The equivalent uniform annual worth refers to the value of a series of cashflows at some point in…

Q: Given the data for two different alternatives in the table below, determine the best alternative…

A: Calculate the rate of return (ROR) for each alternative individually.Compare the ROR of each…

Q: 3. An industrial coal-fired boiler for process steam is equipped with a 10-year-old electrostatic…

A: The present worth of a project or investment refers to its value at present based on the associated…

Q: One of the mutually exclusive alternatives below must be selected. Base your recommendation on A…

A: Incremental cash flow is the extra working cash flow that an association gets from taking on another…

Q: If mutually exclusive projects with normal cash flows are being analyzed, the net present value…

A: YearProject YProject Z0-1500-150012009002400600360030041000200

Q: Two methods can be used to produce solar panels for electric power generation. Method 1 will have an…

A: Method 1 initial Cost = 520000 AOC = 190000 Salvage Value = 180000 Method 2 initial Cost =…

Q: A city is spending $19.5 million on a new sewage system. The expected life of the system is 40…

A: The capitalized worth of the system can be calculated using the formula for the present worth of a…

Q: The PW-based relation for the incremental cash flow series to find A/ between the lower first-cost…

A: The minimum acceptable rate of return is the rate showing the minimum profit that an investor…

Q: Economical solar energy and energy from fusion have been identified as two of engineering's grand…

A: Low-e windows Cost = $11,000 First-year Annual saving = $2,275 Every year's increase in annual…

Q: John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business…

A: Calculation of Accounting Profit of John’s Pizza Catering Business

Q: Most likely estimates for a project are as follows MARR Useful life Initial investment Receipts…

A: The objective of the question is to determine whether an initial investment of $3,450 is profitable…

Q: Hospital is evaluating the purchase of new office equipment from three vendors. Assume MARR=15% and…

A: A financial term known as "present worth" refers to the value of a quantity of money now, taking…

Q: A new highway is to be constructed. Design A calls for a concrete pavement costing $80 per foot with…

A: The measure that depicts the uniform worth of receipts and expenditures being estimated during the…

Q: There are three alternatives X,Y,Z. With 10% MARR, which alternative should be chosen based on…

A: We calculate and compare the present worth of all the three alternatives to choose the best…

Q: 5.15 An environmental engineer is considering three methods for disposing of a non-hazardous…

A: Answer a) To calculate annual worth AW = P(A/P,i,n) - A + F(A/F,i,n) Here, P = Initial Investment…

Q: The PW-based relation for the incremental cash flow series to find A/"between the lower first-cost…

A: The problem case focuses on calculating the incremental rate of return that makes an alternative…

Q: For Annual Worth analysis, when you have variable costs and benefits, the proper analysis approach…

A: Annual worth analysis is used to compare various alternatives and choose the best one. It helps in…

Q: A company must invest in one of two alternatives. Alternative A Alternative B Initial Cost $712,623…

Question

**Investment Decision Analysis: Evaluating Design Alternatives**

**Overview:**
Two mutually exclusive design alternatives are evaluated based on their estimated cash flows. The Minimum Attractive Rate of Return (MARR) is set at 12% per annum. The decision-maker has the option to choose one of these alternatives or neither. The decision is informed using several financial methods.

**Design Specifications:**

- **Design Y:**
- Investment Cost: $140,000
- Annual Revenue: $51,725
- Annual Cost: $9,672
- Useful Life: 15 years
- Salvage Value: $14,700
- Net Present Worth (PW): $149,103

- **Design Z:**
- Investment Cost: $275,000
- Annual Revenue: $84,946
- Annual Cost: $18,059
- Useful Life: 15 years
- Salvage Value: $33,000
- Net Present Worth (PW): $186,587

**Recommendation Criteria:**

a. **Present Worth (PW) Method:**
- Determine which design has a higher PW value to determine economic efficiency.

b. **Benefit-Cost (B/C) Ratio:**
- Calculate the modified B/C ratio for both designs and round to two decimal places.
- Decide which design is more economically favorable based on this ratio.

c. **Incremental B/C Ratio:**
- Compute the incremental B/C ratio and round to two decimal places.
- Use this to conclude which design is more economical according to the B/C method.

d. **Discounted Payback Period:**
- Calculate the discounted payback period for both designs in years, rounded to one decimal place.
- Select the preferred design based on this method.

e. **Payback Period Method Consideration:**
- Why might this method differ from other methods in its recommendations?
- Option A: The method overlooks cash flows after the payback period.
- Option B: The method places greater importance on cash flows following the payback period.

These analyses will guide the decision-maker in determining the most economically viable design for implementation based on specified financial metrics and considerations.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define Net PW

VIEW

Step 2: Find design to be selected given the net PW

VIEW

Step 3: Find modified B/C ratio

VIEW

Step 4: Find Incremental B/C ratio

VIEW

Step 5: Find the discounted payback period for design Y

VIEW

Step 6: Find the discounted payback period for design Z

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 7 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Can you compute the PW of alternative A, the AW of alternative B, the FW of Alternative C, and the PW of alternative D? Also for a MARR of 12%, rank the MEAs from most profitable to least profitable. HINT: You will need to perform additional calculations before answering this question.
If ERR > MARR, then IRR > ERR > MARR. A) True (B) False
Compare the alternatives below on the basis of their capitalized costs. Assume the MARR is 10% per year, compounded annually Project A Project B Project C First cost ($200,000) ($275,000) ($800,000) Annual income $60,000 $70,000 $80,000 Salvage value $40,000 $60,000 $500,000 Life, years 4 7 infinity
The MARR is 15%. Three alternatives are available and the associated cash flow is as follow: Year First Cost A B C $1,700 $2,100 $3,750 Annual Benefit Useful Life 2 $1,000 $1,000 $1,000 3 6 Answer the following in this format: 1.23 1. The payback period for Alternative A is 2. The payback period for Alternative B is 3. The payback period for Alternative C is Based on Payback period analysis, Alternative should be selected. (Enter only the letter)
Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $16,500 per year. An emission reduction filter will cost $75,000 and have an expected life of 5 years. Carlisle's MARR is 10%/year. Part a What is the future worth of this investment? $
Street cost 25 M now and 2 M annual maintenance. At i=10%, what is the capitalized cost?