In: Finance
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 |
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 |