Question

10. Use AW Benefit/Cost Ratio to select preferred Design of the following table. MARR= 9% (10 ptos) Design#1 Design#2 Design#3 Capital Investment Salvage Value Annual O&M costs Annual Benefits Useful life $1,240,000 90,000 215,000 462,800 $1,763,000 150,000 204,000 522,000 $1,475,000 120,000 201,000 485,500 15 yrs. 15 yr 15 yr

Answer 1

Benefit Cost Ratio Formula = Proposed total cash benefits / Proposed total cash cost

benefit/cost ratio of Design1 = (462,800+90,000)/(1,240,000+215,000) = 0.37

" " " " Design2 = (522,000+150,000)/(1,763,000+204,000) = 0.34

" " " " Design3 =(485,500+120,000)/(1,475,000+201,000)= 0.36

Thus from the above calculation we can infer that design1 is better than the others even though the values are less than 1.