Question

international genetic technologies inc. (InGen) is examining the following three mutually exclusive alternatives.

3) Using benefit-cost ratio analysis, a 10-year useful life and a MARR of 25%, determine which of the following mutually exclusive models should be selected. А в C D E Initial Cost $100 $200 $300 $400 $500 $37 $60 $83 $137 $150 Annual Benefits

Answer 1

3.

Alternative A:

Annual worth of the costs = 100(A/P, 25%, 10) = 100(0.2801) = 28.01

Annual worth of benefits = 37

B/C ratio = Annual worth of benefits / Annual worth of costs

               = 37 / 28.01

               = 1.32

Alternative B:

Annual worth of the costs = 200(A/P, 25%, 10) = 200(0.2801) = 56.02

Annual worth of benefits = 60

B/C ratio = Annual worth of benefits / Annual worth of costs

               = 60 / 56.02

               = 1.07

Alternative C:

Annual worth of the costs = 300(A/P, 25%, 10) = 100(0.2801) = 84.03

Annual worth of benefits = 83

B/C ratio = Annual worth of benefits / Annual worth of costs

               = 83 / 84.03

               = 0.99

Alternative D:

Annual worth of the costs = 400(A/P, 25%, 10) = 400(0.2801) = 112.04

Annual worth of benefits = 137

B/C ratio = Annual worth of benefits / Annual worth of costs

               = 137 / 112.04

               = 1.22

Alternative E:

Annual worth of the costs = 500(A/P, 25%, 10) = 500(0.2801) = 140.05

Annual worth of benefits = 150

B/C ratio = Annual worth of benefits / Annual worth of costs

               = 150 / 140.05

               = 1.07

The model which has B/C ratio equal to or greater than 1 should be selected. From the above calculation it is seen that model A, B, D, and E should bed selected.