ENGINEERING ECONOMIC ENHANCED EBOOK
ENGINEERING ECONOMIC ENHANCED EBOOK
14th Edition
ISBN: 9780190931940
Author: NEWNAN
Publisher: OXF
Question
Book Icon
Chapter 7, Problem 65P
To determine

i.

Present worth analysis.

Expert Solution
Check Mark

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

PWA=746(P/A,i,n)2500=746(P/A,8%,5)2500=746(3.993)2500746(P/A,i,n)2500=2978.7782500=$478.778

Alternative B

PWA=1664(P/A,i,n)6000=1664(P/A,8%,5)6000=1664(3.993)6000746(P/A,i,n)2500=66446400=$644.352.

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

To determine

ii.

Annual Cash Flow.

Expert Solution
Check Mark

Answer to Problem 65P

Alternative B has the highest cash flow.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

To determine

ii.

Rate of return analysis.

Expert Solution
Check Mark

Answer to Problem 65P

Alternative A is selected.

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = =2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r=27.14% For B

=6000(1+r)0+1664(1+r)1+1664(1+r)2+1664(1+r)3+1664(1+r)4+1664(1+r)5+1664(1+r)6+1664(1+r)7+1664(1+r)8+1664(1+r)9+1664(1+r)10r=24.68%

Year Alternative A Alternative B
0 -2500 -6000
1 746 1664
2 $746 1664
3 746 1664
4 746 1664
5 746 1664
6 746 1664
7 746 1664
8 746 1664
9 746 1664
10 746 1664
IRR 27.14% 24.68%

Conclusion:

Alternative A is selected.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 7 Solutions

ENGINEERING ECONOMIC ENHANCED EBOOK

Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education