Engineering Economic Analysis

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Problems 515

TABLEP16-25 Data

Mutually Exclusive Alternatives

1 2 3 4 5

Annualized 15.5 13.7 16.8 10.2 17.0 23.3

net costs to

sponsor ($M)

Annualized 20.0 16.0 15.0 13.7 22.0 25.0

net benefits to

users ($M)

(a)Use annual worth and the B/C ratio to identify

the better alternative.

(b)If this were a set ofindependentalternatives, how

would you conduct a comparison?

Mr. O'Gratias, a top manager in his company, has

been asked to consider the following mutually exclu-

sive investment alternatives.

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6

Answer the following questions.

(a)Use theconventional B/C ratio to evaluate the

alternatives and make a recommendation.

(b)Use themodifiedB/C ratio to evaluate the alter-

natives and make a recommendation.

(c)Use a present worth analysis to evaluate the alter-

natives and make a recommendation.

(d) Use an internal rate ofretum analysis to evaluate

the alternatives and make a recommendation.

(e) Use the simple payback period to evaluate the

alternatives and make a recommendation.

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A B C

Initial investment $9500 $18,500 $22,000

Annual savings^3200 5,000 9,800

Annual costs (^1000) 2,750 6,400
Salvagevalue^6000 4,200 14,000
Project life, in years^151515
MARR 12% 12% 12%