Question
In: Economics
The following two investment alternatives are being evaluated using the B/C ratio method. The alternatives have...
The following two investment alternatives are being evaluated using the B/C ratio method. The alternatives have a 5-year service life and the MARR is 18% per year.
|
Alternative A |
Alternative B |
|
|
Capital investment |
$10,900 |
$16,000 |
|
Annual revenues |
4,000 |
7,500 |
|
Annual costs |
250 |
900 |
|
Market value at EOY 5 |
5,000 |
9,200 |
Click the icon to view the interest and annuity table for discrete compounding when i equals=18%per year.
Calculate the modified B/C ratio of Alternative A
A.
1.32
B.1.35
C.1.26
D.0.90
Calculate the incremental modified B/C ratio between the two alternatives
A.
2.73
B.1.79
C.1.28
D.2.07
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Two mutually exclusive cost alternatives, Machine A and Machine B, are being evaluated. Given the following...
Two mutually exclusive cost alternatives,
Machine A and Machine B, are being evaluated.
Given the following time events and incremental cash flow, if
the MARR is 12% per year, which alternative (Machine A or Machine
B) should be selected on the basis of the incremental rate of
return analysis? Assume Machine B requires the extra $10,000
initial investment. (You can use Excel).
Year
Incremental Cash Flow ($)
(Machine B - Machine A)
0
-10,000
1 - 4
1,300
5...
Five alternatives are being evaluated by the incremental rate of return method . Incremental Initial Overall...
Five alternatives are being evaluated by the incremental rate
of return method . Incremental Initial Overall ROR Rate of Return
Alternative Investment , S versus DN . % A B C D A -25.000 9.6 -
27.3 9.4 35.3 25.0 B 15.1 0 38.5 24.4 C - 40,000 13.4 - 46.5 27.3 D
-60,000 25.4 6.8 E -75,000 20.2 - 35.000 If the projects above are
independent , the one or ones to select at an MARR of 18 %...
19*The four revenue alternatives described below are being evaluated by the rate of return method. If...
19*The four revenue alternatives described below are being
evaluated by the rate of return method. If the alternatives are
mutually exclusive, which one(s) should be selected when the MARR
is 15% per year? Alternative Initial Investment ($) Overall Rate of
Return Incremental Rate of Return (%) When Compared with
Alternative i* (%) A B C A -80,000 12 B -110,000 25 42 C -150,000
20 25 10 D -230,000 16 18 13 12
Alternatives A and B are being evaluated. The effective annual interest rate is 10%. What alternative...
Alternatives A and B are being evaluated. The effective annual
interest rate is 10%. What
alternative is economically superior?
Alternative A
Alternative B
first cost
80,000
35,000
life
20 years
10 years
salvage value
7,000
0
annual costs
years 1-5
1000
3000
years 6-10
1500
4000
years 11 - 20
2000
0
additional cost
year 10
5000
0
Payback method Assume a $90,000 investment and the following cash flows for two alternatives. Year Investment...
Payback method Assume
a $90,000 investment and the following cash flows for two
alternatives.
Year
Investment A
Investment B
1................
$25,000
$40,000
2................
30,000
40,000
3................
25,000
28,000
4................
19,000
—
5................
25,000
—
a.
Calculate the payback for investment A and B.
b. If the
inflow in the fifth year for Investment A was $25,000,000 instead
of $25,000, would your answer change under the payback method?
There are two ways for finding the benefit to cost ratio (B/C Ratio) B/C Ratio =...
There are two ways for finding the benefit to cost ratio
(B/C Ratio)
B/C Ratio = [ Annual Benefits-Annual Disbenefits] /
[Annual Cost of Implementing Project]
B/C Ratio = [NPV of Benefits-NPV of Disbenefits] / [NPV
of Implementing Project]
If the B/C Ratio is greater than one, we can infer that the
project is worth undertaking.
Note that there can only be one B/C
ratio for a project (unlike IRR which can at times have multiple
values)
Problem: The City...
Using the incremental B/C method for comparing mutually exclusive alternatives always results in the same economically...
Using the incremental B/C method for comparing mutually
exclusive alternatives always results in the same economically
preferred alternatives as using the PW method.
True/False
When selecting projects based on the payback period
method, a project with a shorter payback period is generally
preferred.
True/False
One of the shortcomings of using the discounted payback
period to select alternatives is that
a)it ignores all the cash flows beyond the payback period
b)it gives more weight to the cash flows beyond the payback...
Compare the following 3 alternatives using the incremental benefit/cost ratio method. Determine which is the most...
Compare the following 3 alternatives using the
incremental benefit/cost ratio method. Determine which is the most
efficient and which is the most profitable. i=5% per year
compounded yearly.
Alter.
DOT Construction cost
Annual Maintenance
Annual Benefits
Life (yrs)
A
$250,000
$5,000
$320,000
9
B
$450,000
$7,000
$370,000
15
C
$700,000
$10,000
$380,000
25
Consider the following investment alternatives: Investment Rate Compounding A 6.25% Annual B 6.10% Daily C 6.125%...
Consider the following investment alternatives:
Investment Rate Compounding
A 6.25% Annual
B 6.10% Daily
C 6.125% Quarterly
D 6.15% Fortnightly
E 6.120% Monthly
Which alternative offers you the highest effective rate of
return?
a.
Investment E
b.
Investment C
c.
Investment D
d.
Investment A
e.
Investment B
Consider the following three mutually exclusive investment project alternatives (A, B, C). Use the annual worth...
Consider the following three mutually exclusive investment
project alternatives (A, B, C). Use the annual worth
analysis (AW) to determine the best investment alternative
assuming MARR=15%.
Project
name:
A
B
C
Cash Flow (Year
0):
-200,000
-300,000 -400,000
Cash Flow (Year
1-N)
+150,000
+180,000 +150,000
Salvage value at year
N:
+30,000
+50,000
+60,000
Project Life
(N):
2 years
3 years
6 years
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