Question

Practice Problem 2 • Two alternative designs are under consideration for a new ride called the Scream Machine at a theme park located in Florida. The two candidate designs differ in complexity, cost and predicted revenue. Alternative A will require an investment of $300,000 and is estimated to produce revenue of $55,000 annually over a 10-year horizon. Alternative B will require an investment of $450,000 and is expected to generate annual revenue of $80,000. A negligible salvage value is assumed for both designs. The theme park management could decide to "do nothing;" if so, the present worth of doing nothing will be zero. • Which alternative design, if either, should the theme park select if its MARR = 8%?

Answer 1

Alternative. A Investment = 300,000 Anual Revenues = 55,000 life = 10 years MARR = 8% P.W = - 300,000 + 55,000 (PIA, 8%.10) P.W2 -300, ovo + 55,000 (6.701 169,055.5 Alternative- bavestment : 450,000 Annual Revenue = 80,000 Litre 10 years; MARR=8% 1 P.W. 450,000 +80,000 (PIA,8%.,10) P.W:- 450,000 + 80,000 6. Hol =186,808] Alternative-B should be SELECTED as it in earacing more revenue than Alternative-A