One of four new techniques, or the current method, can be used to control mildly

Question

One of four new techniques, or the current method, can be used to control mildly irritating chemical fume leakage into the surrounding air form a mixing machine. The estimated costs and benefits (in the form of reduced lost time due to employee poor health compared with the current situation) are given in table 4 for each of the new methods. Assuming that all the methods have a ten-year life with zero salvage value, DETERMINE which one should be selected of the five methods, using a MARR of 15% per year and the BC method. STATE any assumptions that you make. Estimated costs and benefits Technique Installed cost, $ Average operating cost, S/year10,000 Benefits, S/year 19,000 12,000 20,000 25.000 9,000 19,000 33,000 11,000 22,000 15,000 15,000

Explanation / Answer

Answer ) B/C method , i.e Benefit to cost ration method , Under the method if the calculated B/C ratio is greater than or equal to 1.0, then the larger alternative is selected. If incremental B/C ratio is less than 1.0, then lower alternative is selected.

Calculation below,

Cost

Cost

Cost

Technique 3 Should be selected.

MARR 15% Year 0 1 2 3 4 5 6 7 8 9 10 Total Present worth B/C ratio Technique 1 Cost ($15,000.00) ($10,000.00) ($10,000.00) ($10,000.00) ($10,000.00) ($10,000.00) ($10,000.00) ($10,000.00) ($10,000.00) ($10,000.00) ($10,000.00) PV(Cost) ($15,000.00) ($8,695.65) ($7,561.44) ($6,575.16) ($5,717.53) ($4,971.77) ($4,323.28) ($3,759.37) ($3,269.02) ($2,842.62) ($2,471.85) ($65,187.69) Benefits $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $10,093.84 $1.15 PV( benefits) $13,043.48 $11,342.16 $9,862.74 $8,576.30 $7,457.65 $6,484.91 $5,639.06 $4,903.53 $4,263.94 $3,707.77 $75,281.53 Technique 2

Cost

($19,000.00) ($12,000.00) ($12,000.00) ($12,000.00) ($12,000.00) ($12,000.00) ($12,000.00) ($12,000.00) ($12,000.00) ($12,000.00) ($12,000.00) PV(Cost) ($19,000.00) ($10,434.78) ($9,073.72) ($7,890.19) ($6,861.04) ($5,966.12) ($5,187.93) ($4,511.24) ($3,922.82) ($3,411.15) ($2,966.22) ($79,225.22) Benefits $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 $21,150.15 $1.27 PV( benefits) $17,391.30 $15,122.87 $13,150.32 $11,435.06 $9,943.53 $8,646.55 $7,518.74 $6,538.04 $5,685.25 $4,943.69 $100,375.37 Technique 3

Cost

($25,000.00) ($9,000.00) ($9,000.00) ($9,000.00) ($9,000.00) ($9,000.00) ($9,000.00) ($9,000.00) ($9,000.00) ($9,000.00) ($9,000.00) PV(Cost) ($25,000.00) ($7,826.09) ($6,805.29) ($5,917.65) ($5,145.78) ($4,474.59) ($3,890.95) ($3,383.43) ($2,942.12) ($2,558.36) ($2,224.66) ($70,168.92) Benefits $19,000.00 $19,000.00 $19,000.00 $19,000.00 $19,000.00 $19,000.00 $19,000.00 $19,000.00 $19,000.00 $19,000.00 $25,187.69 $1.36 PV( benefits) $16,521.74 $14,366.73 $12,492.81 $10,863.31 $9,446.36 $8,214.22 $7,142.80 $6,211.13 $5,400.99 $4,696.51 $95,356.60 Technique 4

Cost

($33,000.00) ($11,000.00) ($11,000.00) ($11,000.00) ($11,000.00) ($11,000.00) ($11,000.00) ($11,000.00) ($11,000.00) ($11,000.00) ($11,000.00) PV(Cost) ($33,000.00) ($9,565.22) ($8,317.58) ($7,232.68) ($6,289.29) ($5,468.94) ($4,755.60) ($4,135.31) ($3,595.92) ($3,126.89) ($2,719.03) ($88,206.45) Benefits $22,000.00 $22,000.00 $22,000.00 $22,000.00 $22,000.00 $22,000.00 $22,000.00 $22,000.00 $22,000.00 $22,000.00 $22,206.45 $1.25 PV( benefits) $19,130.43 $16,635.16 $14,465.36 $12,578.57 $10,937.89 $9,511.21 $8,270.61 $7,191.84 $6,253.77 $5,438.06 $110,412.91

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