The table gives annual worth values for five mutually exclusive projects. The di
ID: 1121022 • Letter: T
Question
The table gives annual worth values for five mutually exclusive projects. The discount rate is 8% and the projects are projected to last 20 years. Which project (s) should be selected based on the B/C method?
Project A
Project B
Project C
Project D
Project E
AW of first cost
4,000
8,000
9,000
7,000
6,500
AW of M&O costs
10,000
10,000
8,000
12,000
8,000
AW of benefits
20,000
43,000
53,000
43,000
32,000
AW of dis benefits
5,000
22,000
32,500
20,000
16,000
A)Project B
B)Project A
C)Project D
D)All projects
E)Project C
Project A
Project B
Project C
Project D
Project E
AW of first cost
4,000
8,000
9,000
7,000
6,500
AW of M&O costs
10,000
10,000
8,000
12,000
8,000
AW of benefits
20,000
43,000
53,000
43,000
32,000
AW of dis benefits
5,000
22,000
32,500
20,000
16,000
Explanation / Answer
Project A has a total outflow of 19000 ( 4,000 + 10,000 + 5,000 )
PVAF of outflow would be 19000x9.8181 =186,544
BENEFIT DERIVED IN 20 YEARS @8% WHERE PVAF IS 9.8181 WILL BE 196,362
NPV WOULD BE 9,818
Project B has a total outflow of 40,000 ( 8,000 + 10,000 + 22,000 )
PVAF of outflow would be 40,000x9.8181 = 392,724
BENEFIT DERIVED IN 20 YEARS @8% WHERE PVAF IS 9.8181 WILL BE 422,178
NPV WOULD BE 29,454
Project C has a total outflow of 49,500 (9,000 + 8,000 + 32,500 )
PVAF of outflow would be 49.500x9.8181 = 485,996
BENEFIT DERIVED IN 20 YEARS @8% WHERE PVAF IS 9.8181 WILL BE 520,359
NPV WOULD BE 34,363
Project D has a total outflow of 39,000 ( 7,000 + 12,000 + 20,000)
PVAF of outflow would be 39.000x9.8181 = 382,906
BENEFIT DERIVED IN 20 YEARS @8% WHERE PVAF IS 9.8181 WILL BE 520,359
NPV WOULD BE 33,272
Project E has a total outflow of 30,500 ( 6,500 + 8,000 + 16,000)
PVAF of outflow would be 30.500x9.8181 = 299,452
BENEFIT DERIVED IN 20 YEARS @8% WHERE PVAF IS 9.8181 WILL BE 314,179
NPV WOULD BE 14,727.
Therefore, answer would be Project c ie, option E
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