-What is the benefit to cost ratio of the following project if the MARR is 8%. (
ID: 2594873 • Letter: #
Question
-What is the benefit to cost ratio of the following project if the MARR is 8%.
(Note:Consider salvage value as a cost - in other words, what is the cost of the equipment considering Initial Cost and Salvage Value)
Initial Cost $9,000
Annual Savings $1,900
Salvage Value $1,250
Life 15 years
1.84
1.80
1.89 (Explain why this is the correct answer)
1.94
-A machine initially costing $25,000 will have a salvage value of $1,944 after five years. Using Double Declining Balance depreciation, what will the book value be after the third year?
$15,000
$9,000
$5,400 (Explain why this is the correct answer)
$3,240
-You have borrowed $5,000 and must pay it off in five equal annual payments. Your annual interest rate is 10%. How much interest will you pay in the first two years?
$918 (Explain why this is the correct answer)
$875
$932
$855
1.84
1.80
1.89 (Explain why this is the correct answer)
1.94
Explanation / Answer
PART-1) Solution: 1.89
Working:
For alternative I B = ($1500)(P/A, 8%, 15) = ($1500)(8.5595) = $12,839
C = $7,000 – ($500)(P/F, 8%,15) = $7,000 – ($500)(0.3152) = $6842
B/C = $12,839/$6842 = 1.88
PART-2) Solution: $5,400
Working:
25,000/5 = 5000 = 20%
DDB =40%
Amount
Dep
BV
25000
10000
15000
15000
6000
9000
9000
3600
5400
PART-3) Solution: $918
Working:
A/P (10%,5) = 0.2638
5000 * 0.2638 = $1319
Interest paid at the end of first year = $5,000 * 0.10 = $500
Principal left after the first year = $5000 - ($1319 - $500) = $4181
Interest paid at the end of second year = $4181 * 0.10 = $418
Total interest paid at the end of two year = $500 + $418 * $918
Amount
Dep
BV
25000
10000
15000
15000
6000
9000
9000
3600
5400
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