
(a):
Selection of the alternative using the payback period analysis.
(a):

Explanation of Solution
Alternate A: First cost (FC) is $300,000. Revenue (RE) is $60,000 per year.
Alternate B: First cost (FC) is $300,000. Revenue is $10,000 first year and increase (
MARR (i) is 8%.
Payback period (n) for Alternate A can be calculated as follows:
From 8% interest table, it is known that the payback period is between the years 6 and 7 years.
Payback period (n) for Alternate B can be calculated as follows:
Substitute n as 7 years by trial and error method to verify the payback period.
Since the calculated value is less than the first cost, payback period should increase. Thus, the payback period for Alternate B is greater than 7 years. The payback period for alternate A is less than 7 years. Since the payback period for alternate A is less, select Alternate A.
(b):
Selection of the alternative using the present worth analysis.
(b):

Explanation of Solution
Time period (n) is 10.
Present worth (PW) for Alternate A can be calculated as follows:
Present worth for Alternate A is $102,606.
Present worth (PW) for Alternate B can be calculated as follows:
Present worth for Alternate B is $156,753. Since the present worth of Alternate B is greater, select Alternate B.
(c):
Selection of the alternative using the spreadsheet.
(c):

Explanation of Solution
Payback period and present worth of the alternate can be calculated using the spreadsheet as follows:
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Chapter 13 Solutions
Engineering Economy
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