(a)
The best alternative based on payback period.
Answer to Problem 51P
The Alternative- B should be selected.
Explanation of Solution
Calculation:
Write the equation for Payback period.
Calculate the Payback period for Alternative-A.
Substitute
Calculate the Payback period for Alternative-B.
Substitute
Calculate the Payback period for Alternative-C.
Substitute
The alternative that has minimum value of payback period should be selected.
Conclusion:
Therefore, the Alternative- B should be selected.
(b)
The best alternative based on future worth analysis.
Answer to Problem 51P
The Alternative- B should be selected.
Explanation of Solution
Calculation:
Calculate the net future worth for alternative-A.
Here, the net future worth is NFW, the
Calculate the factor
Calculate the factor
Substitute
Calculate the net future worth (NFW) for alternative-B.
Calculate the factor
Calculate the factor
Substitute
Calculate the net future worth (NFW) for alternative-C.
Calculate the factor
Calculate the factor
Substitute
The Alternative that has maximum value of future worth should be selected.
Conclusion:
Therefore, the Alternative- B should be selected.
(c)
The best alternative based on B/C ratio analysis.
Answer to Problem 51P
The Alternative- C should be selected.
Explanation of Solution
Calculation:
Calculate the factor
Write the equation for B/C ratio.
Calculate EUAB for Alternative-A.
Substitute
Calculate the B/C ratio for Alternative-A.
Substitute
Calculate the factor
Write the Equation for B/C ratio.
Calculate EUAB for Alternative-B.
Substitute
Calculate the B/C ratio for Alternative-B.
Substitute
Calculate the factor
Write the Equation for B/C ratio.
Calculate EUAB for Alternative-B.
Substitute
Calculate the B/C ratio for Alternative-B.
Substitute
Conclusion:
Therefore, the Alternative- C should be selected.
(d)
The reason behind the difference in answer in parts (a), (b), and (c).
Answer to Problem 51P
Explanation of Solution
In this case, there are three alternatives and
Since, least time is taken by alternative A for recovering the cost, however according to part (b), Alternative B is favorable for long-term economic efficiency and Alternative C is favorable according to part (c). Hence, it is ascertained that the answers in part (c), (a) and (b) differs from each other.
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Chapter 9 Solutions
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