In evaluating three mutually exclusive alternatives by the B/C ratio method, the
ID: 2083555 • Letter: I
Question
In evaluating three mutually exclusive alternatives by the B/C ratio method, the alternatives were ranked in terms of increasing total equivalent cost (X, Y, and Z respectively), and the following results were obtained for the BC ratios: 1.1, 0.9, and 1.3 for X, Y and Z respectively. On the basis of these results, you should: A. Select X B. Select Z C. Select X and Z D. Compare X, Y and Z incrementally. E. Compare X, Y and Z incrementally Basis for Choice: An alternative with an infinite life has a conventional B/C ratio of 1.5; with benefits of $50,000 per year and annual maintenance costs of $10,000. At an interest rate of 10%, the initial cost of the alternative is closest to: A. $23, 300 B. $85, 400 C. $146, 100 D. $233, 300 Formula used:Explanation / Answer
B/C = 1.5 = 50000/(0.1P + 10000)
Therefore the initial cost of alternative P = 233333 = option D