{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Homework 24 Solution

# Homework 24 Solution - Homework 24 Solution 7.22 The...

This preview shows pages 1–2. Sign up to view the full content.

Homework 24 Solution 7.22 The problem statement says “select one” so we have to assume that “do nothing” is not an option even though these look like the equivalent of “revenue” projects because they have direct benefits. If we use the modified B/C definition, the only cost in the denominator is the initial cost (there is no salvage value) so we need to determine if the additional \$49,000 it would cost to use the new sensors is justified by the additional benefits. Since all of the remaining costs are annual values, we’ll amortize the \$49,000 cost difference over the 10-year study period: 0.14238 C \$49,000 A | P,7%,10 \$6977 per year Counting the O&M costs as disbenefits, the annual benefits of the two options are B EC = \$110,000 – \$26,000 – \$49,000 = \$35,000 B NS = \$160,000 – \$64,000 = \$96,000 B = \$96,000 – \$35,000 = \$61,000 per year So the incremental B/C ratio is \$61,000 B C 1 \$6977  Therefore, select the more-expensive NS option. We could have also used the conventional B/C definition. In that case, we’d have to include the O&M costs in the denominator. Now the costs of the two options are C EC = \$38,000 (0.14238) + \$49,000 = \$54,410 C NS = \$87,000 (0.14238) + \$64,000 = \$76,387 C = \$76,387 – \$54,410 = \$21,977 Omitting the O&M costs, the annual benefits of the two options are B EC = \$110,000 – \$26,000 = \$84,000 B NS = \$160,000

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern