MECH 402 Engineering Economics The cash flows for three mutually exclusive alter

Question

MECH 402 Engineering Economics The cash flows for three mutually exclusive alternatives are given in table below. MARR-4%. cost Annual benefits $4,500 7,600 RoR IF Problem 1 ARoR for the first increment (Alt, C-Alt. A) is A. 3.36% B. 3.09% C. 2.85% D. 3.62% Solution: Problem 2 Determine the ARoR for the second increment (Alt. B-AltA) if A was retained during the first A. 10.85% incremental analysis. B. 8.12% -CA19% D. 5.78% Problem 3 The best alternative for a MARR of 2.0% using the incremental rate of return analysis is A. Alt. C B. Alt. A C.Alt. B D. Do-nothing F9

Explanation / Answer

problem 1 AROR for the increment ( C - A ) years 0 1 2 3 4 5 c , cash flows -24000 6500 6500 6500 6500 6500 a , cash flows -15000 4500 4500 4500 4500 4500 incremental cash flows -9000 2000 2000 2000 2000 2000 internal rate of return using excel .=irr( cash flows form year 0 to 5 ) 3.62% answer d . 3.62 % problem 2 AROR for the increment ( B - A ) years 0 1 2 3 4 5 b , cash flows -27000 7600 7600 7600 7600 7600 a , cash flows -15000 4500 4500 4500 4500 4500 incremental cash flows -12000 3100 3100 3100 3100 3100 internal rate of return using excel .=irr( cash flows form year 0 to 5 ) 9.19% answer c . 9.19 % problem 3 the best alternative for a MARR of 2 % using the incremental rate of return is alternative 2 , because its incremental rate of return 9.19 % is more than the rate of return of 4 %

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