a. Use the conventional benefit /cost ratio equivalent worth measure, to select
ID: 1128025 • Letter: A
Question
a. Use the conventional benefit /cost ratio equivalent worth measure, to select the preferred design for the 3. (15%) You ha ve been assigned the task of com- paring the economic results of three alternative method, with AW as the designs for a state government public works project. The estimated values for various eco project. nomic factors related to the three designs are b. Use the modified B/C ratio method, with Pyw giv the analysis period is 15 years. en below. The MARR being used is 996 and as the equivalent worth measure to select the preferred design for the project. Alternative Design Factor Capital investment Salvage value (end of year 15) $1,240,000 $1,763,000 $1,475,000 90,000 150,000 120,000 201,000 Annual O & M costs 215,000 Annual benefits to other user group 147,800 155,000Explanation / Answer
As per the information provided in the question was there are three projects of longer duration i.e., 15 years and we need to choose the best. And it is calculated by using present worth(PW) in the form of benefit cost.
steps to be followed while calculating
1. Take initial investment. Deduct salvage value to get cost of the project.
2. Now take the all annual benefits and deduct annual costs from them. It includes administrative and selling cost. Balance is total annual benefits.
3. Divide total benefits by the total cost to get the B/C ratio and it is accepted if ratio is higher than 1. and projectt with highest ratio is the most preferred one.
Statement showing calculation of benefit-cost ratio
Answer is project 1 has highest B/C ratio, it is best preferred.
For question 2 we need to calculate present value and then to calculate estimate ratio:
Calculation of present worth at MARR @ 9%
As the result suggest A is the best one
Statement showing calculation of benefit-cost ratio Details Project 1 Project 2 Project 3 Initial Investment 1240000 1763000 1475000 Annual benefits to A 315000 367000 355000 Benefits to other groups 147800 155000 130500 Total benefits 462800 522000 485500 Annual O&M cost 215000 204000 201000 Net benefit 247800 318000 284500 Total benefit of 15 years 37170000 4770000 4267500 Benefit/cost ratio(4/7) 3.232174 2.957223 3.149446 Statement showing calculation of net cost Details Project 1 Project 2 Project 3 Initial Investment 1240000 1763000 1475000 Salvage value 90000 150000 120000 Net cost of Investment 1150000 1613000 1355000Related Questions
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