Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 16, Problem 11P
To determine
Selection of the alternate.
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IBM is considering an environmentally conscious green building at one of its new production facilities. The company will decide among three different green designs for the facility, and each of the final mutually exclusive concepts for the facility results in different costs and savings. These threeconcepts are summarized below. IBM uses 10% per year as its profitability benchmark (hurdle rate) for such comparisons. Which facility concept should be selected?
Let PW(A) be the present worth of investment alternative A, PW(B) be the present worth of investment alternative B, B/C(A) be the benefit-cost ratio for investment alternative A, and B/C(B) be the benefitcost ratio for investment alternative B. If PW(A) > PW(B) > $0, which of the following answers is correct? a) B/C(A) > B/C(B); b) B/C(A) > B/C(B) > 1.0; c) B/C(A) > 1.0 and B/C(B) > 1.0; d) insufficient information available to answer
For the four alternatives described in the table, which project or
projects should be selected, using ROR method and MARR of 13% ?
(Use only capital letters for alternatives names exactly as in table.
For Ai*, use number followed by % immediately (no space))
1- if they are independents:
2- If they are mutually exclusive: fill in the steps below based on the
comparison with MARR = 13%
Step 1: Exclude alternative
Overall Incremental Rate of Return, %
ROR, % A
from competition
First
Alternative Cost, $
B
D
-80.000
14
-60.000
16
12
Step 2:
|(challenger) VS||
-40.000
17
11
14
17 23
D
-30,000
12
35
(defender), Ai* =
-----> select
Step 3:
( challenger) VS
(defender), Ai* =
select
Chapter 16 Solutions
Contemporary Engineering Economics (6th Edition)
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