Solutions to HW #6
IE 1040
Fall, 2005
11.1
First, rank order alternatives
from low capital investment to high capital
investment: DN
A
B
C (here we assume doing nothing, DN, is an option).
Next, consider incremental capital investments by using Equation 11-4:
∆
(A-DN):
∆
B/
∆
C = $120.000/$144,000 = 0.83 < 1
where
∆
C = $1,300,000(A/P,10%,20) - $500,000(A/F,10%,20)
Reject A
∆
(B-DN):
∆
B/
∆
C = $300,000/$184,000 = 1.63 > 1
where
∆
C = $1,700,000(A/P,10%,20) - $900,000(A/F,10%,20)
Select B
∆
(C-B):
∆
B/
∆
C = $150,000/$192,250 = 0.78 < 1
where
∆
C = $1,800,000(A/P,10%,20) - $1,100,000(A/F,10%,20)
Select B as best
.
11.8
Alt. A:
Expand present storage facility
Alt. B:
Entirely new facility
Examine
∆
(B-A):
For
∆
(B-A), if
∆
Benefits ÷
∆
Costs ≥ 1 select Alt. B; otherwise go with Alt. A
because it is less costly.
C
B
∆
∆
=
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