Two design alternatives A and B have the following cash flows. Each alternative

Question

Two design alternatives A and B have the following cash flows. Each alternative has 30-year life at a 5% interest rate. Alternative A Alternative B Initial Cost $700,000 $950,000 Annual Benefits $80,000 $120,000 Annual Operating Cost $20,000 $30,000 Using incremental B/C ratio to select the best alternative. Which of the following statements is TRUE? Answer A. Incremental B/C ratio is 1.52 and Alternative A should be selected. B. Incremental B/C ratio is 1.52 and Alternative B should be selected. C. Incremental B/C ratio is 0.66 and Alternative B should be selected. D. Incremental B/C ratio is 0.66 and Alternative A should be selected.

Explanation / Answer

B. Incremental B/C ratio is 1.52 and Alternative B should be selected.

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