Question

QUESTION 8 Solar and converfonalaternatives are available for providing energy at a remote space research ste. The costs associated with each alternative are shown below. Use the B/C method to determine which should be selected at a discount rate of 0.75% per month (12 months) over a 6-year study period. hint: convert costs to monthly Initial cost, MROCOL S/month Salvage values Conventional 2.000.000 50.000 0 Solar 4,500,000 10.000 150,000 • Boost Abenefits A conventional 8.1.23 C 43196 D.Solar E. 2500000 Inc BC which project to select F. 40000 G-0.92

Answer 1

∆cost = (4,500,000 -2,000,000) *(A/P, 0.75%,72) - 150,000*(A/F, 0.75%,72)

= 2,500,000* 0.01803 – 150,000 *0.01053

= 43496

∆benefits = $40,000 [ 50,000 -10,000]

Incr B/c = 40000/43496 = 0.92

Which project to select = conventional

Answer 2

∆cost = (4,500,000 -2,000,000) *(A/P, 0.75%,72) - 150,000*(A/F, 0.75%,72)

= 2,500,000* 0.01803 – 150,000 *0.01053

= 43496

∆benefits = $40,000 [ 50,000 -10,000]

Incr B/c = 40000/43496 = 0.92

Which project to select = conventional