Question

Using the incremental B-C analysis, B-C ratio with PW and a MARR of 10%, choose the best alternative from the following three mutually exclusive alternatives given below. State your assumptions. Option B Option C Option A $30000 $50000 $70000 5 10 15 Initial investment Life in years Salvage value Annual benefits 0 0 $2000 $8000 $8000 $8000

Answer 1

Solution :-

Equation for BC analysis is

Present worth of Net benefits / Present worth of Net costs.

where,

Net cost = Initial investment - Salvage Value

Option A :

Net cost = $30000-0 = $30000

$30000 + $8000 (P/A 10%,5)

-$30000 + (8000×3.7908)= $326.4

Option B :

Net cost = $50000-0 = $50000

$50000 + $8000 (P/A 10%,10)

-$50000+(8000×6.1446)= $9156.8

Option C :

Net cost = $70000-2000 = $68000

$68000 + $8000 (P/A 10%,15)

-$68000 + (8000 × 7.606080) = $60,848.64

Thus, Option C Is better than Option A and Option B.

Because of higher present worth.

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