(a):
Calculate the missing value.
(a):

Explanation of Solution
Table -1 shows the cash flow.
Table -1
Alternative | 1 | 2 | 3 | 4 |
Initial cost (F) | - | -60,000 | -72,000 | -98,000 |
Annual cost (AC) | -70,000 | -64,000 | -61,000 | -58,000 |
Annual saving (AS) | 80,000 | 80,000 | 80,000 | 80,000 |
Overall | 18.6% | - | 23.1% | 20.8% |
Comparing alternative | 2 to 1 | 3 to 2 | 4 to 3 | |
Incremental investment (II) | -16,000 | - | -26,000 | |
Incremental cash flow per year (IC) | 6,000 | 3,00 | - | |
Incremental rate of return (ir) | 35.7% | - | - | |
Time period (n) | 10 | 10 | 10 | 10 |
Initial cost of machine 1 can be calculated as follows.
Thus, the initial cost of alternate 1 is -44,000.
Overall rate of return for alternate 2 can be calculated as follows.
Substitute the incremental rate of return as 23% by trial and error method in the above equation.
The calculated value is greater than the present value factor to the annual value. Thus, increase the incremental rate of return to 23.41%.
The calculated value is equal to the present value factor to the annual value. Thus, it is confirmed that the incremental rate of return is 23.41%.
Incremental investment between alternate 3 and 2 can be calculated as follows.
Incremental cash flow 3 to 2 is -$12,000.
Incremental investment cash flow per year between alternate 4 and 3 can be calculated as follows.
Incremental cash flow per year 4 to 3 is $5,000.
Incremental rate of return between alternate 3 to 2 can be calculated as follows.
Substitute the incremental rate of return as 21% by trial and error method in the above equation.
The calculated value is greater than the present value factor to the annual value. Thus, increase the incremental rate of return to 21.41%.
The calculated value is equal to the present value factor to the annual value. Thus, it is confirmed that the incremental rate of return is 21.41%.
Incremental rate of return between alternate 4 to 3 can be calculated as follows.
Substitute the incremental rate of return as 14% by trial and error method in the above equation.
The calculated value is greater than the present value factor to the annual value. Thus, increase the incremental rate of return to 14.08%.
The calculated value is equal to the present value factor to the annual value. Thus, it is confirmed that the incremental rate of return is 14.08%.
(b):
Selection of alternate.
(b):

Explanation of Solution
MARRR is 18%.
Since the alternatives are mutually exclusive, should select only one alternative.
The overall rate of return cans be considered as incremental rate of return from the particular alternative with the initial alternate Do nothing.
Incremental rate of return between initial alternate Do nothing and new alternate 1 is 18.6%. Since the incremental rate of return is greater than the MARR, select the alternate 1 and eliminate the alternate Do nothing.
Incremental rate of return between initial alternate 1 and new alternate 2 is 35.7%. Since the incremental rate of return is greater than the MARR, select the alternate 2 and eliminate the alternate 1.
Incremental rate of return between initial alternate 2 and new alternate 3 is 21.41%. Since the incremental rate of return is greater than the MARR, select the alternate 3 and eliminate the alternate 2.
Incremental rate of return between initial alternate 3 and new alternate 4 is 14.08%. Since the incremental rate of return is less than the MARR, select the alternate 3 and eliminate the alternate 4.
Thus, ultimately select the alternate 3.
Want to see more full solutions like this?
Chapter 8 Solutions
ENGINEERING ECONOMY DIGITAL ACCESS
- Explain how much of emotional, mental and physical toll makes it so difficult to break the cycle of poverty.arrow_forwardCase Study: The Impact of Ebola on Tax Revenue in the DRC Background: The Democratic Republic of the Congo has experienced mulitiple outbreaks, with the 2018-2020 outbreak being one of the most severe. The outbreak had profound effects on public health, the economy and government operations. The DRC's economy already fragile due to policital instability and conflict, faced additional stain as the Ebola virus spread across several provinces. Economic disruption: The Ebola outbreak led to significant disruptions in the affected regions. Businesses were forced to close or reduce operations due to quarantine measures and the fear of contagion. this resulted in a sharp decline in economic activities, particularly in sectors such as agriculute, mining and trade. reduced consumer spending and interruptions in supply chains further exacerbated the economic downturn. Impact on Tax Revenue: the economic…arrow_forwardKey shortcomings of the Human Capital approach to measuring the monetary value of benefits of new treatments are that it Will generate lower benefits for male lives on average Will generate higher benefits for female lives on average Will tend to OVERVALUE improvements in quality of life Will tend to UNDERVALUE improved survival for people out of labour forcearrow_forward
- One of the key concepts in economics that underpins the necessity of making tough choices and confronting difficult tradeoffs through some form of collective decision-making is called Production Consumption Exchange Equity Scarcityarrow_forwardAllocative efficiency WITHIN the health care sector refers to What mix of nonmedical and medical goods and services should be produced in the macro-economy What mix of medical goods and services should be produced in the health economy What specific health care resources should be used to produce the chosen medical goods and services Who should receive the medical goods and services that are producedarrow_forwardProduction efficiency is most concerned with Choice of inputs in production process Quantity of outputs resulting from the production process The technological process of production All of the abovearrow_forward
- Choose all of the following that are assumed to be constant while constructing the production possibilities curve Technology Precise mix of inputs Institutional arrangements like judicial protection of business contracts Outputsarrow_forwardA point that lies OUTSIDE of the PPC can be achieved if A major technological innovation increases production efficiency A sudden influx of resources e.g., massive immigration of trained nurses Economic reform resulting in greater protection of intellectual property rights All of the above Only options 1 and 2arrow_forwardThe marginal benefit from each successive unit of medical care consumed declines BECAUSE each successive unit is more expensive to produce True Falsearrow_forward
- In the Human Capital approach, estimated monetary worth of life is MOST SENSITIVE to which key indicator Discount rate Social security payroll taxes Labour market earnings Workplace injury compensationarrow_forwardOver the last few decades out-of-pocket costs have formed a DECLINING proportion of total consumer expenditure on medical care True Falsearrow_forwardCost benefit analyses often assumes the following about consumers EXCEPT Consumers have clear preferences among choices they are exposed to Consumers purposely choose actions that result in higher satisfaction Consumers factor in uncertainty of outcomes in their decision-making regarding net benefits and costs Consumers lack information about attributes of market goods that are necessary for ranking their choice setarrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering 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 LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education





