Please help, need to solve Engineering Economics with cash flow diagrams (drawin
ID: 1207475 • Letter: P
Question
Please help, need to solve Engineering Economics with cash flow diagrams (drawing) if possible. Thank you!
You have been assigned the task of comparing the economic results of three alternative designs for a state government public works project. The estimated values for various economic factors related to the three designs are given below. The MARR being used is 9% and the analysis period is 15 years. Use the conventional benefit/cost ratio method, with AW as the equivalent worth measure, to select the preferred design for the project. Use the modified B/C ratio method, with PW as the equivalent worth measure, to select the preferred design for the project.Explanation / Answer
Benefit cost ratio method is a technique of evaluating capital projects. They are projects of long term duration. Here three projects are stated with 15 years life. You have to select the best one. It is calculated by using present worth or in inabsolute figures of benefit cost., First calculations are made on the basis of absolute figures. Steps are as follows:
1. Take initial investment. Deduct salvage value to get cost of the project.
2. Now take all annual benefits. Deduct annual costs from them. It includes administrative and selling cost. Balance is total annual benefits.
3. Divide total benefits by the total cost to get the B/C ratio. Normally it is accepted if ratio is higher than 1. Project with highest ratio is the most preferred one.
Calculations are shown below:
Answer: As project A has highest B/C ratio, it is the most preferred one.
----------------------------------------------------------------------------------------------------------------------------------
In second part calculate present value and then estimate ratio. Present worth is calculated by multiplying yearly cash flows with discounting factor. In last year salvage value has been added as it is cash inflow.
Answer: As the result suggest A is the best one.
Statement showing calculation of benefit-cost ratio Details 1 2 3 1. Initial Investment 1,240,000 1,763,000 1,475,000 2. Annual benefits to A 315,000 367,000 355,000 3. Benefits to other groups 147,800 155,000 130,500 4. Total benefits 462,800 522,000 485,500 5. Annual O & M cost 215,000 204,000 201,000 6. Net benefit (annual) 247,800 318,000 284,500 7. Total benefit of 15 years 3,717,000 4,770,000 4,267,500 8. Benefit/cost ratio [4/7] 3.232174 2.957223 3.149446 Statement showing calculation of net cost (investment) Details 1 2 3 1. Initial Investment required 1,240,000 1,763,000 1,475,000 2. Salvage value 90,000 150,000 120,000 3. Net cost of investment 1,150,000 1,613,000 1,355,000