You have been requested to recommend one of the mutually exclusive industrial sa

Question

You have been requested to recommend one of the mutually exclusive industrial sanitation control systems that are given below. If MARR is 12% per year which system would you select? Assume that not having to re-invest in five year is an added benefit of the Vacuum-led. Use the B-C method Alternative Gravity-fed Vacuum-led Capital investment Annual receipts less expenses Life in years $24,300 $36,300 4 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year An incremental B-C ratio is(Round to the two decimal places.) More Info Discrete Compounding: 1 12% Uniform Series Compound Amount Factor To Find F Given P Present Worth Factor To Find P Given F Compound Amount Factor To Find F Given A Present Worth Factor To Find P Given A Factor To Find A Given F Capital Recovery Factor To Find A Given P 1.1200 0.5917 1.0000 0.4717 0.2963 0.2092 0.1574 1.1200 0.8929 0.7972 1.0000 2.1200 3.3744 0.8929 1.6901 1.4049 1.5735 1.7623 1.9738 4 3.0373 0.6355 0.5674 0.5066 0.4523 0.3292 0.2774 0.2432 0.2191 6.3528 0.0991 10.0890 12.2997 14.7757 17.5487 20.6546 24.1331 28.0291 32.3926 37.2797 4.5638 4.9676 5.3282 5.6502 5.9377 6.1944 6.4235 6.6282 6.8109 2.4760 2.7731 0.3220 0.2875 0.2567 0.2292 0.2046 0.1827 0.0570 0.0484 0.1770 3.4785 3.8960 4.3635 4.8871 5.4736 0.1684 0.1557 0.1468 12 13 0.0357 0.0309 0.0268

Explanation / Answer

For Gravity Fed

Initial Investment = $24,300

Annual Income = $7,300

Annual rate = 12%

Tenure = 4 year

Present value of annuity factor at 12% discount rate for 4 year = 3.0373.

Present value of cash flow = $7,300 × 3.0373

= $22,172.29.

Present value of cash flow is $22,172.29.

B/C ratio = $22,172,29 / $24,300

= 0.91.

B / C ratio for Gravity Fed is 0.91.

For Vaccum Led

Initial Investment = $36,300

Annual Income = $7,300

Annual rate = 12%

Tenure = 8 year

Present value of annuity factor at 12% discount rate for 8 year = 4.9676.

Present value of cash flow = $7,300 × 4.9676

= $36,263.77.

Present value of cash flow is $36,263.77.

B/C ratio = $36,263.77 / $36,300

= 0.999.

B / C ratio for Vaccum Led is 0.999.

Since, B / C ratio for both machine is less than 1, so neither of the equipment is acceptable.

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