(Solved):For the data below, select the best alternative using incremental B/C ratio (benefit-cost ratio)…

 

Question

For the data below, select the best alternative using incremental B/C ratio (benefit-cost ratio) analysis.

Note that MARR= 12%.

X Y Z
Initial Cost $500 $2000 $1,200
Annual benefit 100 500 400
Salvage value 500 500 500
Life 6 years 6 years 6 years

 

EXPERT ANSWER

First, find the disouncted benefit (annual benefit and salvage value) and discounted cost (initial cost — no need to discount because it occurs at time 0) for each project:

{eq}Discounted Benefit_X = 100 * cfrac{1-(1/(1.12)^6)}{0.12} + cfrac{500}{1.12^6}= 664.46 \

Discounted Benefit_Y

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