Consider three mutually exclusive alternatives, each with a 15-year useful life. If the MARR is 12%,...
Consider three mutually exclusive alternatives, each with a 15-year useful life. If the MARR is 12%, which alternative should be selected? Solve the problem by using benefit-cost ratio analysis, Net Present Value, and Internal Rate of Return.
| A | B | C | |
| Cost | $800 | $300 | $150 |
| Uniform Annual Benefit | 130 | 60 | 35 |
Homework Answers
|
Year |
A |
B |
C |
|
0 |
-800 |
-300 |
-150 |
|
1 |
130 |
60 |
35 |
|
2 |
130 |
60 |
35 |
|
3 |
130 |
60 |
35 |
|
4 |
130 |
60 |
35 |
|
5 |
130 |
60 |
35 |
|
6 |
130 |
60 |
35 |
|
7 |
130 |
60 |
35 |
|
8 |
130 |
60 |
35 |
|
9 |
130 |
60 |
35 |
|
10 |
130 |
60 |
35 |
|
11 |
130 |
60 |
35 |
|
12 |
130 |
60 |
35 |
|
13 |
130 |
60 |
35 |
|
14 |
130 |
60 |
35 |
|
15 |
130 |
60 |
35 |
|
B:C ratio |
2.44 |
3.00 |
3.50 |
|
NPV |
85.41 |
108.65 |
88.38 |
|
IRR |
13.96% |
18.42% |
22.18% |
Based on the above results, it is better to select the option C, as the B:C ratio and IRR is higher when compared with alternatives A and B
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