Tempe is considering four mutually exclusive public-works projects. Their costs
ID: 2773401 • Letter: T
Question
Tempe is considering four mutually exclusive public-works projects. Their costs and
benefits are presented in the table below. Each project has a useful life of 50 years and the MARR is
12% per year. Which of the projects, if any, should be selected? (Use B-C approach)
A B C D
Capital investment $23,000,000 $18,000,000 $31,000,000 $26,000,000
Annual op. and maint. cost 1,800,000 1,200,000 2,100,000 2,000,000
Market value 2,400,000 2,200,000 4,000,000 3,100,000
Annual Benefit 5,000,000 4,500,000 6,500,000 5,800,000
Many thanks :)
Explanation / Answer
A B C D Capital investment 23000000 18000000 31000000 26000000 Annual op. and maint. cost 18,00,000 12,00,000 21,00,000 20,00,000 Market value 24,00,000 22,00,000 40,00,000 31,00,000 Annual benefit 50,00,000 45,00,000 65,00,000 58,00,000 PW(10%)-costs 42913495.5 27957786 48425606 42598270 PW(10%)-benefits 41522492.4 37370243 53979240 48166091 B-C ratio 1.03 0.75 0.90 0.88 PW(12%)-costs A Capital investment 23000000 1 23000000 42913495 Annual op. and maint. cost 24,00,000 8.3045 19930796 Market value 50,00,000 0.0035 17300.91 B Capital investment 18000000 1 18000000 27957786 Annual op. and maint. cost 12,00,000 8.3045 9965398 Market value 22,00,000 0.0035 7612.399 C Capital investment 31000000 1 31000000 48425606 Annual op. and maint. cost 21,00,000 8.3045 17439447 Market value 40,00,000 0.0035 13840.73 D Capital investment 26000000 1 26000000 42598270 Annual op. and maint. cost 20,00,000 8.3045 16608997 Market value 31,00,000 0.0035 10726.56 PW(10%)-benefits A B C D Annual benefit 50,00,000 45,00,000 65,00,000 58,00,000 PV Factor 8.3045 8.3045 8.3045 8.3045 41522492 37370243 53979240 48166091
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