QUESTION 5 A tractor costs $50,000 and has an expected life of ten years. The sa

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QUESTION 5 A tractor costs $50,000 and has an expected life of ten years. The salage value is estimated to be $2000, M&0 costs are $1000 per year, and revenues are $10,000 per year. MARR-896, The Aw of the tractor is most nearly: O a S1690 Ob $1550 O C $2680 O d $2600 QUESTION6 10%. and M&O; of S5000 t is rerected to last for 10 years. The annual evenuesfrom the machine are$18,000. MAR Anch e has ann tal c stofS4000 What is the benefit to cost (B/C) ratio? O a None of these numerical answers O c 1.73 0 d. 2.24 Oe, 156 Save All

Explanation / Answer

Question 5

Machine Cost = 50,000

Life = 10 years

Salvage Value = 2,000

M&O Cost = 1,000 per year

Revenues = 10,000 per year

MARR = 8%

Annual Net cash flow = Annual revenues – annual M&O cost

Annual Net cash flow = 10,000 – 1,000 = 9,000

NPW = -50,000 + 9,000 (P/A, 8%, 10) + 2,000 (P/F, 8%, 10)

NPW = -50,000 + 9,000 (6.7101) + 2,000 (0.4632) = 11,317

AW = NPW (A/P, 8%, 10)

AW = NPW (0.1490) = 1,686

Answer = a. $1,690

Question 6

Initial Cost = 40,000

Life = 10 years

M&O Cost = 5,000 per year

Revenues = 18,000 per year

MARR = 10%

Calculate Benefit Cost Ratio

Using the Present Worth

Benefit Cost Ratio = PW of Benefits ÷ Initial Cost + PW of M&O Cost

Benefit Cost Ratio = 18,000(P/A, 10%, 10) ÷ 40,000 + 5,000 (P/A, 10%, 10)

Benefit Cost Ratio = 18,000 (6.1446) ÷ 40,000 + 5,000 (6.1446)

Benefit Cost Ratio = 110,603 ÷ 70,723

Benefit Cost Ratio = 1.56

Answer = e. 1.56

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