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Problems 2999-48 Three mutually exclusive alternatives are being
considered:At the end of its usefUl life, an alternative isnotre-
placed. If the MARR is 10%, which alternative should
be selected:
(a) Based on the payback period?
(b) Based on benefit-cost ratio analysis?
Year E F G H
o -$90 -$110 -$100 -$120
1 20 35 0 0
2 20 35 10 0
3 20 35 20 0-
4 20 35 30 0
5 20 0 40 0
6 20 0 50 180(a) Based on fUture worth analysis, which of the four
alternatives is preferred at 6% interest?
(b) Based on fUture worth analysis, which alt~rnative
is preferred at 15% interest?
(c) Based on the payback period, which alternative
is preferred? _
(d) At 7% interest, what is the benefit-cost ratio for
Alt. G?
Tom Jackson is preparing to buy a new car. He knows
it represents a large expenditure of money, so he wants
to do an analysis to see which of two cars is more
economical. AlternativeAis an American-built com-
pact car. It has an initial cost of $8900 and operating
costs of 9,i1km, excluding depreciation. Tom checked
automobile resale statistics. From them he estimates
the American automobile can be resold at the end of
3 years for $1700. Alternative B is a foreign-built
Fiasco. Its initial cost is $8000, the operating cost,
also excluding depreciation, is 8,i1km. How low could
the resale value of the Fiasco be to provide equally
economical transportation? Assume Tom will drive
12,000 km/year and considers 8% as an appropriate
interest rate. (Answer: $175)
A newspaper is considering purchasing locked vend-
ing machines to replace open newspaper racks for
the sale of its newspapers in the downtown area. TheT9-45 Consider three alternatives:A 8 CFirst cost $50 $150 $110
Uniform annual benefit 28.8 39.6 39.6
UsefUl life, in years*^264
Computed rate of return 10% 15% 16.4%*At the end of its usefUllife, an identical alternative
(with the same cost, benefits,and usefUllife) may be
installed.All the alternatives have no salvage value. If the
MARR is 12%,which alternativeshouldbe selected?
(a)Solve the problem by future worth analysis.
(b)Solve the problem by benefit-cost ratio analysis. 9-49
(c)Solve the problem by payback period.
(d) If the answers in parts(a), (b),and(c)differ,
explain why this is the case.
9-46 Consider three mutually exclusive alternatives.The
MARR is 10%.Year X Y Z
0 -$100 -$50 -$50
I 25 16 21
2 25 16 21
3 25 16 21
4 25 16 21(a)For Alt. X, compute the benefit-cost ratio.
(b)Based on the payback period, which alternative
should be selected?
(c)Determine the preferred alternativebased on an 9-50
exact economic analysis method.
7 The cash flowsfor three alternativesare as follows:Year A B C(^0) -$500 -$600 -$900
1 -400 -300 0
2 200 350 200
3 250 300 200
4 300 250 200
5 350 200 200
6 400 150 200
(a)Based on payback period, which alternative
should be selected?
(b)Using fUtureworth analysis, and a 12% inter- 9-51
est rate, determine which alternative should be
selected.
A B C
Initial cost $500 $400 $300
Benefit at end of the first 200 200 200
year
Uniform benefit at end of 100 125 100
subsequent years
UsefUl life, in years^654