Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
Question
Book Icon
Chapter 9, Problem 50P
To determine

(a)

The best alternative based on payback period.

Expert Solution
Check Mark

Answer to Problem 50P

The Alternative- C should be selected.

Explanation of Solution

Write the Equation for Payback period.

Paybackperiod=CostAnnualBenefit ...... (I)

Calculate the Payback period for Alternative-A.

Substitute $75 for cost, and $18.8 for annual benefit in Equation (I).

Paybackperiod=$75$18.8=3.98Years

Calculate the Payback period for Alternative-B.

Substitute $50 for cost, and $13.9 for annual benefit in Equation (I).

Paybackperiod=$50$13.9=3.6Years

Calculate the Payback period for Alternative-C.

Substitute $15 for cost, and $4.5 for annual benefit in Equation (I).

Paybackperiod=$15$4.5=3.3Years

Calculate the Payback period for Alternative-D.

Substitute $90 for cost, and $23.8 for annual benefit in Equation (I).

Paybackperiod=$90$23.8=3.8Years

The Alternative that has minimum value of Payback period should be selected.

Conclusion:

Therefore, the Alternative- C should be selected.

To determine

(b)

The best alternative based on Future worth analysis.

Expert Solution
Check Mark

Answer to Problem 50P

The Alternative- B should be selected.

Explanation of Solution

Calculate the net future worth for alternative-A.

NFW=$18.8(FA,10%,5)$75(FP,10%,5) ...... (II)

Here, the net future worth is NFW, the future value is F, the Annual benefit is A and the initial cost is P.

Calculate the factor (FA,10%,5).

(FA,10%,5)=[(1+0.10)510.10]=6.105

Calculate the factor (FP,10%,5).

(FP,10%,5)=(1+0.10)5=1.610

Substitute $6.105 for (FA,10%,5), and 1.610 for (FP,10%,5) in Equation (II).

NFW=($18.8×6.105)($75×1.610)=$114.774$120.75=$6

Calculate the net future worth for alternative-B.

NFW=$13.9(FA,10%,5)$50(FP,10%,5) ...... (III)

Substitute $6.105 for (FA,10%,5), and 1.610 for (FP,10%,5) in Equation (III).

NFW=$13.9×6.105$50×1.610=$84.86$80.5=$4.36

Calculate the net future worth for alternative-C.

NFW=$4.5(FA,10%,5)$15(FP,10%,5) ...... (IV)

Substitute $6.105 for (FA,10%,5), and 1.610 for (FP,10%,5) in Equation (IV).

NFW=$4.5×6.105$15×1.610=$27.47$24.15=$3.32

Calculate the net future worth for alternative-D.

NFW=$23.8(FA,10%,5)$90(FP,10%,5) ...... (V)

Substitute $6.105 for (FA,10%,5), and 1.610 for (FP,10%,5) in Equation (V).

NFW=$23.8×6.105$90×1.610=$145.30$145=$0.30

The Alternative that has maximum value of Future worth should be selected.

Conclusion:

Therefore, the Alternative- B should be selected.

To determine

(c)

The best alternative based on B/C ratio analysis.

Expert Solution
Check Mark

Answer to Problem 50P

All Alternatives should be selected except A.

Explanation of Solution

Calculate the factor (PA,10%,5).

(PA,10%,5)=[(1+0.10)510.10(1+0.10)5]=3.790

Write the equation for B/C ratio.

B/Cratio=EUABEUAC ...... (VI)

Calculate EUAB for Alternative-A.

EUAB=$18.8(PA,10%,5) ...... (VII).

Substitute 3.790 for (PA,10%,5) in Equation (VII).

EUAB=$18.8×3.790=$71.252

Calculate the B/C ratio for Alternative-A.

Substitute $71.252 for EUAB, and $75 for EUAC in Equation (VI).

B/Cratio=$71.252$75=0.95

Calculate EUAB for Alternative-B.

EUAB=$13.9(PA,10%,5) ...... (VIII).

Substitute 3.790 for (PA,10%,5) in Equation (VIII).

EUAB=$13.9×3.790=$52.7

Calculate the B/C ratio for Alternative-B.

Substitute $52.7 for EUAB, and $50 for EUAC in Equation (VI).

B/Cratio=$52.7$50=1.05

Calculate EUAB for Alternative-C.

EUAB=$4.5(PA,10%,5) ...... (IX).

Substitute 3.790 for (PA,10%,5) in Equation (IX).

EUAB=$4.5×3.790=$17.055

Calculate the B/C ratio for Alternative-C.

Substitute $17.05 for EUAB, and $15 for EUAC in Equation (VI).

B/Cratio=$17.05$15=1.14

Calculate EUAB for Alternative-D.

EUAB=$23.8(PA,10%,5) ...... (X).

Substitute 3.790 for (PA,10%,5) in Equation (X).

EUAB=$23.8×3.790=$90.202

Calculate the B/C ratio for Alternative-C.

Substitute $90.202 for EUAB, and $90 for EUAC in Equation (VI).

B/Cratio=$90.202$90=1.

Conclusion:

Therefore, all Alternatives should be selected except A.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
The following graph plots daily cost curves for a firm operating in the competitive market for sweatbands. Hint: Once you have positioned the rectangle on the graph, select a point to observe its coordinates.   Profit or Loss0246810121416182050454035302520151050PRICE (Dollars per sweatband)QUANTITY (Thousands of sweatbands per day)MCATCAVC8, 30   In the short run, given a market price equal to $15 per sweatband, the firm should produce a daily quantity of     sweatbands.   On the preceding graph, use the blue rectangle (circle symbols) to fill in the area that represents profit or loss of the firm given the market price of $15 and the quantity of production from your previous answer. Note: In the following question, enter a positive number regardless of whether the firm earns a profit or incurs a loss. The rectangular area represents a short-run     of    thousand per day for the firm.
Not use ai please
South Africa faces the triple challenge of poverty, inequality and unemployment and the national minimum wage debate has pulled on all three threads to make arguments for and against this policy. Discuss the theoretical implications of a national minimum wage, and touching on each of the three challenges South Africa faces, discuss some arguments for how this policy may affect them.

Chapter 9 Solutions

Engineering Economic Analysis

Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education