This question context is from the textbook Engineering Economic Analysis George

Question

This question context is from the textbook Engineering Economic Analysis

George must choose between three alternatives that each have a 5 year life. Alternative A has a cost of $611 and annual benefit of $159. Alternative B has a cost of $498 and annual benefit of $138. Alternative C has a cost of $201 and annual benefit of $59. Using a MARR of 10% and benefit-cost ratio analysis, state here on Blackboard which alternative George should select. You must state here on Blackboard the B-C ratios (to 2 decimal places , e.g. 0.94 or 5.61 ) you used to make the selection.

Explanation / Answer

Alternative A:

Benefit-Cost ratio = $159(P/A,10%,5) / $611

B/C ratio = $159*3.7907 / 611 = 602.7213/611

B/C ratio = 0.98.

Alternative B:

B/C ratio = $138*3.7907/498 = 523.1166/498

B/C ratio = 1.05.

Alternative C:

B/C ratio = $59*3.7907/201

B/C ratio = 223.6513/201

B/C ratio = 1.11.

The Alternative C has the highest B/C ratio among the three alternatives. Hence, Alternative C should be selected.

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