Question

In: Finance

Given the net cash flow for two machines as shown below, what is the benefit cost...

Given the net cash flow for two machines as shown below, what is the benefit cost ratio for the difference in the benefits and costs for the higher initial cost machine and the lower initial cost machine if the MARR is 12%?

Machine A Machine B
Years CF Costs CF Benefits CF Costs CF Benefits
0 ($67,000) $0 ($121,000) $0
1 ($17,600) $65,000 ($15,200) $48,600
2 ($72,458) $65,000 ($15,656) $48,600
3 ($18,672) $65,000 ($16,126) $48,600
4 ($76,871) $65,000 ($16,609) $48,600
5 ($19,809) $65,000 ($17,108) $48,600
6 ($1,551) $65,000 $4,159 $48,600

1.78

1.56

1.34

1.14

Solutions

Expert Solution

Years Machine A Machine B
Costs Benefits Costs Benefits Cost Differences Benefit Differences Discount Factor @ 12% Present Value of cost differences Present Value of benefit differences
A B C D E F = B-D G = C-E H F*H G*H
0 -67000 0 -121000 0 -54000 0 1 -54000 0
1 -17600 65000 -152000 48600 -134400 -16400 0.893 -120000 -14642.8571
2 -72458 65000 -15656 48600 56802 -16400 0.797 45282.2066 -13073.9796
3 -18672 65000 -16126 48600 2546 -16400 0.712 1812.19251 -11673.1961
4 -76871 65000 -16609 48600 60262 -16400 0.636 38297.5904 -10422.4965
5 -19809 65000 -17108 48600 2701 -16400 0.567 1532.61994 -9305.80043
6 -1551 65000 -4159 48600 -2608 -16400 0.507 -1321.29396 -8308.75039
-88396.6844 -67427.0801
Ratio :
=88396.6844 /67427.08
=1.34

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