CE 352
Spring
2008
Homework 5: Chapters 8-12
Practice Problems
Problem
8-10
Answer:
Alternative B
Problem 8-12
Answer:
(a) Select B, (b) Select B, (c) Select A
Problem 9-33
Answer:
Select B
Problem 9-36
Answer:
Select A
Problem 9-52
Answer:
X = 6.9 years
Problem 9-62
Answer:
(a) 8 years
(b)
5-1/3 years
Problems11-11; 11-16; 11-18 a,c; 11-23
Problems 12-17, a &b; 12-22; 12-30; 12-37
Homework Problems
1.
Two mutually exclusive investment alternatives A and B are being considered by the
XYZ Company. The cash flows are given below.
(a) Which is the preferred alternative based on the rate of return approach?
(b) What can be said about the two alternatives?
Use a MARR of 10% and an analysis period of three years.
Alternative A
Alternative B
Year
Costs
Benefits
Costs
Benefits
0
$4,000
$0
$8,000
$0
1
8,000
9,900
20,000
23,660
2
4,000
5,900
24,000
27,660
3
2,000
3,900
28,000
31,660
Solution:
Year
Net Cash Flows
Alt.
A
Alt.
B
(B - A)
0
-$4,000
-$8,000
-$4,000
1
1,900
3,660
1,700
2
1.900
3,660
1,700
3
1,900
3,660
1,700
Part (a):
Calculate the rate of return for alternatives A and B.
NPW (A) = -4,000 + {1,900 (P/A, i, 3)}.
Try i = 20%.
NPW = -4,000 + (1,900 × 2.106)
= $1.40.
i is greater than MARR
(i = 20.17%).
Therefore, Alt. A is attractive.
NPW (B)
=
- 8,000 + {3,660 (P/A, i, 3)}.