Question 1 (20 points): Consider three mutually exclusive projects (A, B, and C)

Question

Question 1 (20 points): Consider three mutually exclusive projects (A, B, and C) Cash Flows 1,850.00 $1,850.00$1,900.00 First Cost Uniform annual benefit $90.00 Salvage value Useful life, in years 315.00 405.00 325.00 $360.00 135.00 When each project reached the end of its useful life, it would be sold for its salvage value and there would be no replacement. a) Plot the net present worth (NPW) of each project on the same chart with interest rates ranging from 0% to 100% b) If 5 % is the desired rate of return, which project should be selected? Question 2 (10 points): Given an interest rate i-10%, compute the future worth (FW) for the following cash flow $300 $250 $150 Question 3 (20 points): Use benefit-cost ratio analysis, a 5-year useful life, and a 10% MARR, determine which of the following mutually exclusive alternatives should be selected? Cost Annual benefit 110.00 47.00 220.00 79.00 330.00 440.00 $550.00 136.00 93.00 165.00

Explanation / Answer

Ans 3)

PW for benefit to be calculated by multiplying discount factor to annual benefit

B1/(1.1)+B2/(1.1)^2+B3/(1.1)^4+...   

A B C D E

PW of Benefit for 178.7 299.5 352.5 515.5 625.5

BC Ratio   178.7/110 299.5/220 352.5/330   515.5/440   625.5/550

1.62 1.36 1.07 1.17 1.13

Hence BC Ratio for A is highest hence A to be chosen

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