Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 16, Problem 15P
To determine
Selection of the alternate.
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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
Consider the two mutually exclusive projects described in the table below. (Note: Each part of the question requires a
written answer.)
a) Assuming 9% minimum attractive rate of return (MARR), should either of the two projects be accepted?
Why?
b) Assuming 16% MARR, should either of the two projects be accepted? Why?
c)
For any positive value of the MARR, divide the possible MARR values into ranges with different decisions;
describe and discuss what decision would be made in each range and why. You will need to calculate the
crossover rate to determine the precise MARR where the decision changes. Include an NPV profile table and
chart to illustrate your answer.
Year
0
1
2
3
4
5
Cash Flow
Cash Flow
Project A
Project B
-450,000
-700,000
200,000
200,000
150,000
200,000
100,000
200,000
100,000
200,000
75,000 200,000
A city is evaluating the installation of a garbage incinerator on the outskirts of town. The cost of the unit is $3 million. Environmental impact studies cost $25,000 to be paid prior to starting construction. Annual costs are estimated to include:Plant operating expenses: $30,000.Environmental remediation expenses: $32,000.As a benefit of the incinerator, a cost reduction of $12 is estimated. annually to the invoice of the company's 35,000 clients. The equipment is estimated to have a useful life of 20 years, after which the incinerator will be dismantled at a cost of $50,000. Assuming that the money is raised at 7% interest, what is the benefit-to-cost ratio of this project?
a.1,204
b.None of the answers is correct
c.1,250
d.1,186
e.1,238
Chapter 16 Solutions
Contemporary Engineering Economics (6th Edition)
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