Question

Problem 8) The accounting department is involved in a little wager. The accountants believe that an engineer cannot correctly determine which alternative should be chosen using equivalent uniform annual cash flow analysis. As a means of proving this statement, the accountants have provided you with the following data. The accounting department has chosen Alternative B. Calculate the equivalent uniform annual cash flow of each alternative using a MARR of 12%. State whether or not you agree with the accounting department. Alt. С 9 $112,000 $46,000 $2,000 $15,000 Alt. B DATA Useful Life, Years First Cost (FC) Annual Benefit (AB M&0 Gradient. (M&0G) M&O Cost (M&O) Alt. A $135,000 $73,000 $3,000 $29,000 $123,000 $67,000 $2,800 $21,200 M&0 -Maintenance and operation

please dont use excel to show the steps

Answer 1

Answer to the question is given in form of images:

Calculation of Annual equivalent for Alt A:

Od Hernan ve A (fc)' -$123, ooo First cost Minal = Annual Benefit IAB) キ67,000 OG 2800 0 Annual revenue amount 〈A) = AB-M&D -M&D 67 , ooo-2800-21200 3,000 43,000 A3,000 43,0 7 The Anno eaui valent cost exPremioy ニ-12300 0 1012141) t 43,000 . IA

Calculation of Annual equivalent for Alt B:

Calculation of Annual equivalent for Alt C:

Altemahve B AB73,00o 122, 135000 Annual reuenue amauut (13000

Xltematwe c '. 29,000 29,000 29,dP AB.= $ 4b000 M& 01 = $2000 2 12 Y 112,000 -Si5000 Annual revenue amount lA) 4booo-S 2000 C) -112.000 [0.1877) + 2900 수 7417.6 AE(12y)

Conclusion: Here, this is a revenue dominated problem. So the highest value alternative should be choosen as best one.

AE(12%)= $18,266 (Alternative B) is higher and hence we agree with the accounting department.

Thanks.