ENGINEERING ECO ANALYSIS W/STUDY GUIDE
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
13th Edition
ISBN: 9780190693053
Author: NEWNAN
Publisher: Oxford University Press
Question
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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.

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Chapter 9 Solutions

ENGINEERING ECO ANALYSIS W/STUDY GUIDE

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