teing Design) 27. (9 points) Three mutually exclusive wastewater treatment solut

Question

teing Design) 27. (9 points) Three mutually exclusive wastewater treatment solutions (A, B, and C) are being considered. The equivalent uniform annual worth (EUA W) is calculated at varying interest rates for each alternative as shown graphically below. 2000 1500 1000 500 0% 2% 4% 6s_% 12% 14% -500 1000 1500 2000 INTEREST RATE (%) a. Calculate the exact incremental rate of return (IRR) for alternative B? The initial cost is $20,000, the uniform annual benefit is $3,550, and the salvage value is $3,000. Calculate the IRR to prove what's shown graphically if n-6 years. b. Based on the graph, fill in the blank below (okay to use approximate values) MARRS Do Nothing c. If MARR is 6%, which alternative should be selected

Explanation / Answer

a) As can be seen from the graph, the point where B cross the interest rate line is between 4% and 6%, it is quite near the 5% mark.

Use RATE function in excel or I/Y on calculator to compute the exact IRR

PMT = 3550, PV = -20000, FV = 3000, N = 6 => IRR = 5.37%

b) If 0% < MARR < 5%, Select C

If 5% < MARR < 12%, Select A

If MARR>12%, do nothing

c) Select A

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