
(a):
Calculate the benefit–cost ratio.
(a):

Explanation of Solution
Table-1 shows the cash flow.
Table -1
Item | Cash flow |
First cost (F) | 13,000,000 |
Benefit (B) per year | 3,800,000 |
6,750,000 | |
Maintenance cost (MC) per year | 400,000 |
Time period (n) | 20 |
Discount rate (i) | 10% |
Benefit–cost ratio (BC) can be calculated as follows:
Benefit–cost ratio is 1.91. Since the benefit–cost ratio is greater than 1, the project is economically justified.
(b):
Minimum value of the first cost.
(b):

Explanation of Solution
The project is acceptable when at least the benefit–cost ration (BC) is equal to 1. If it is less than 1, then the project would not be accepted. The minimum value of the first cost (F) can be calculated as follows:
To accept this project, the first cost must be greater than $27,942,779.47. If the first cost is less than $27,942,779.47, then the project would not be accepted.
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Chapter 9 Solutions
ENGINEERING ECONOMY(LOOSELEAF)
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