Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 8P
a:
To determine
Calculate the benefit cost ratio.
b:
To determine
Calculate the incremental benefit cost ratio.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Consider the cashflow (n = 10 years, MARR = e = 14%)
Cash Flow A
Investment
P 180,000
Revenues
P 350,000 per year
Expenses
P 400,000 per year
for the first 3 years,
decreasing by P
50,000 per year
thereafter
a. Determine the Annual Worth (AW) of each project.
b. Determine the Internal Rate of Return (IRR) of each project.
c. Determine the External Rate of Return (ERR) of each project.
Salvage
Value
P 40,000
Are the investment decisions based solely on an estimate of a project's profitability?
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?
Chapter 16 Solutions
Contemporary Engineering Economics (6th Edition)
Knowledge Booster
Similar questions
- Consider the following investment opportunity: Capital Investment (End of Year 0) Expenses (per year) Revenues (geometric series) $450,000 $25,000 $60,000 in the first year, increasing 5% per year following Market value (End of Year 20) Study Period (years) MARR (per year) $90,000 20 years 10% 10% Interest Tablearrow_forwardAnother method to deal with the unequal life problem of projects is the equivalent annual annuity (EAA) method. In this method the annual cash flows under the alternative investments are converted into a constant cash flow stream whose NPV is equivalent to the NPV of the comparative project's Initial stream. Consider the case of Three Waters Boatbuilders: Three Waters Boatbuilders is considering a three-year project that has a weighted average cost of capital of 10% and a net present value (NPV) of $85,647. Three Waters Boatbuilders can replicate this project indefinitely. The equivalent annual annuity (EAA) for this project is The EAA approach to evaluating projects with unequal lives does not do a good job of taking inflation into account.arrow_forwardFor 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* = selectarrow_forward
- Eaton Medical Services is evaluating 10 independent indivisible projects, all with positive NPV. The company's capital budgeting for the year is limited to a maximum of $5,000,000. (A) Use solver to find the optimum combination of projects the company should accept, under the assumption that A and B are mutually exclusive and one of them has to be selected. (B) Ignore the constraint from previous part, assume that project “I” has to be accepted. Use solver to find optimum combination of projects the company should accept now. Please show all steps to compute in excel using solver to get to the right answers. Thank you in advance, will upvote! Project Cost NPV A 1,061,191 122,737 B 561,758 58,102 C 1,647,849 280,660 D 1,026,020 89,365 E 191,870 17,568 F 1,333,625 76,960 G 3,102,642 123,240 H 275,568 79,367 I 2,044,070 60,506 J 1,017,567 56,690arrow_forwardThe product development group of a high-tech electronics company developed five proposals for new products. The company wants to expand its product offerings, so it will undertake all projects that are economically attractive at the company’s MARR of 20% per year. The cash flows (in $1000 units) associated with each project are estimated. Which projects, if any, should the company accept on the basis of a present worth analysis? Project A B C D E Initial investment, $ −400 −510 −660 −820 −900 Operating cost, $/year −100 −140 −280 −315 −450 Revenue, $/year 360 235 400 605 790 Salvage value, $ — 22 — 80 95 Life, years 3 10 5 8 4arrow_forwardAli is a Planning engineer considered the following three mutually exclusive investment projects (A, B, and C) at PTUK. He summarized the relevant data provided for these projects as; for project A, the initial investment is -200 , annual return is 22 and the salvage value is 200. For project B, the initial investment is -4000, salvage value is 2600 and the annual return is 620. For project C, the initial investment is -5450, annual retum is 740 and salvage value is 4300. The useful life for these projects is similar which is 5 years, and MARR=10% . Which alternatives are feasible based on their ROR.arrow_forward
- A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4,231 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit. Identify seven combinations of project investments and a bank deposits which exhaust the budget. Which of the above combinations should the firm choose when the bank deposit rate is (i) 15% or (ii) 20%? Explain your answer and show your work. Suppose there is no option to deposit in the bank, but the projects are "divisible" (e.g. you may have 25% of project A). Which combination should the firm choose? Explain your answer and show your work. Use 15% as the deposit rate (discount rate).arrow_forwardFisher Publishing Inc. is doing a financial feasibility analysis for a new book. Editing and preproduction costs are estimated at $45,000. The printing costs are a flat $7000 for setup plus $8.00 per book. The author's royalty is 8% of the publisher's selling price to bookstores. Advertising and promotion costs are budgeted at $8000. a. If the price to bookstores is set at $35, how many books must be sold to break even? (Round the answer up to the nearest whole number.) b. The marketing department is forecasting sales of 4800 books at the $35 price. What will be the net income from the project at this volume of sales?arrow_forwardAn electric utility is taking bids for the purchase, installation, and operation of decentralized battery storage systems. The table below has some details for the two bids received. a) Which is the most economical bid if the rate is 11%. None of the batteries are expected to have a salvage value after 30 years of use. (Actual expected service life is listed in the bid) b) Also solve using NPW method to compare these two mutually exclusive plans Equipment cost Installation cost Annual Inspection and Maintenance fee Annual extra income taxes Life Salvage Value Bid A $112,000 $25,000 $2,000 0 40 years 0 Bid B $98,000 $30,000 $2,000 $800 35 years 0arrow_forward
- select projects options are 3, 2, 1&3, 2&3, or 1&2arrow_forwardb) Kenya is in the advanced stages of preparing to manufacture COVID-19 vaccines locally. The Ministry of Health has identified a number of facilities all over the country for consideration for the manufacture of one or more of three vaccines; Johnson and Johnson (JJ), AstraZeneca (AZ) and Pfizer (PF). A feasibility study done by the ministry found out the following: 145 have capacity to manufacture JJ and PF 112 have capacity to manufacture JJ and AZ 156 have capacity to manufacture AZ and PF 321 have capacity to manufacture AZ 35 have no capacity to manufacture any of the three vaccines 79 have capacity to manufacture JJ and AZ but not PF The number that has capacity to manufacture JJ only is equal to those that have capacity to manufacture PF only. The number that has capacity to manufacture PF only is twice those that have capacity to manufacture AZ only Required (i) Present this information on a Venn diagram and hence determine the number of facilities…arrow_forwardIf mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV) and internal rate of return (IRR) methods always agree. Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. Year Project Y Project Z 0 -$1,500 -$1,500 1 $200 $900 2 $400 $600 3 $600 $300 4 $1,000 $200 NPV (Dollars) 800 600 Project Y 400 Project Z 200 -200 0246 8 10 12 14 16 18 20 COST OF CAPITAL (Percent) If the weighted average cost of capital (WACC) for each project is 14%, do the NPV and IRR methods agree or conflict? O The methods agree. O The methods conflict.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education