Title: You have been assigned the task of comparing the economic results of three alternative designs for a state government public works project. The estimated values for various economic factors related to the three designs are given above. The MARR being
1- You have been assigned the task of comparing the
economic results of three alternative designs for
a state government public works project. The
estimated values for various economic factors
related to the three designs are given above. The
MARR being used is 9 and the analysis period is
15 years. - a. Use the conventional benefit/cost ratio
method, with AW as the equivalent worth measure,
to select the preferred design for the project. - b. Use the modified B/C ratio method, with PW as
the equivalent worth measure, to select the
preferred design for the project.
2- (a) Design 1 CR (9) 1,240,000(A/P,9,15) -
90,000(A/F,90/o,15) 150,815 - B/C 315,000 147,800 1.27 gt 1
- 150,815 215,000
- Design I is an acceptable base
alternative.
Select Design 3.
3- (b) Design 1
- B/C (315,000 147,800 - 215,000)(P / A, 9,
15) 1.64 gt1 - 1,240,000 - 90,000 (P/F, 9, 15)
- Design 1 is an acceptable base alternative.
Select Design 3.
4- 9-28 Your company manufactures circuit boards and
other electronic parts for various commercial
products. Design changes in part of the product
line, which are expected to increase sales, will
require changes in the manufacturing operation.
The cost basis of new equipment required is
220,000 (MACRS five-year property class assets).
Increased annual revenues, in year zero dollars,
are estimated to be 360,000. Increased annual
expenses, in year zero dollars, are estimated to
be 239,000. The estimated market value of
equipment at the end of the six-year analysis
period is 40,000. General price inflation is
estimated at 4.9 per year the total escalation
rate on annual revenues is 2.5, and for annual
expenses it is 5.6 the after-tax MARR (in
market terms) is 10 per year and t 39. - a. Based on an after-tax, actual dollar analysis,
what is the maximum amount that your company can
afford to spend on the total project (i.e.,
changing the manufacturing operations)? Use the
PW method of analysis. - b. Develop (show) your ATCF in real dollars.
5- Annual revenues in year k (A) 360,000(1.1025)k
- Annual expenses in year k (A) - 239,000(l.056)
k - The values in the following table are expressed
in A.
PW(10) ?ATCFk (P/F, 10,k) 136,557
Total investment that can be afforded (including
new equipment) 136,557 220,000 356,557
6(b) ATCFk (R) ATCF(A)(P/F, 4.9, k)
7- 10 - 13
- A new steam flow monitoring device must be
purchased immediately by a local municipality.
These most likely estimates have been developed
by a group of engineers - Capital investment - 140,000
- Annual savings 25,000
- Useful life 12 years
- Market value (end of year 12) 40,000
- MARR 10/year
- Because considerable uncertainty surrounds these
estimates, it is desired to evaluate the
sensitivity of PW to 50 changes in the most
likely estimates of (a) annual savings, (b)
useful life, and (c) interest rate (MARR). Graph
the results and determine to which factor the
decision is most sensitive.
8At the most likely estimates PW(10) - 140,000
25,000 (P/A, 10, 12) 40,000 (P/F, 10, 12)
43,086 At a -50 change in
Life(example) PW(10) - 140,000 25,000 (P/A,
10, 6) 840,000 (P/F, 10, 6) - 140,000
25,000 (4.3553) 40,000 (0.5645) - 8,538
9Decision is most sensitive to the estimate of
Annual Saving