Solutions:

Question 1:

Answer:

a. The present worth is calculated as follows:

𝑃𝑃𝑃𝑃 = −21500 + (10 − 5) ∗ ℎ ∗ (𝑃𝑃/𝐴𝐴, 𝑖𝑖, 10) + 21500 ∗ (1 − 0.2)10 ∗ (𝑃𝑃/𝐹𝐹, 𝑖𝑖, 10)
𝑃𝑃𝑃𝑃 = −20609.96 + 5ℎ ∗ (𝑃𝑃/𝐴𝐴, 𝑖𝑖, 10) (1)

For ℎ = 1500:

𝑃𝑃𝑃𝑃 = −20609.96 + 7500 ∗ (𝑃𝑃/𝐴𝐴, 𝑖𝑖, 10)

For 𝑖𝑖 = 10%:

𝐴𝐴𝐴𝐴 = 𝑃𝑃𝑃𝑃 ∗ (𝐴𝐴/𝑃𝑃, 𝑖𝑖, 10) = $4145.8

b. For 𝑖𝑖 = 11%:

𝐴𝐴𝐴𝐴 = 𝑃𝑃𝑃𝑃 ∗ (𝐴𝐴/𝑃𝑃, 𝑖𝑖, 10) = $3987.3

For 𝑖𝑖 = 9%:

𝐴𝐴𝐴𝐴 = 𝑃𝑃𝑃𝑃 ∗ (𝐴𝐴/𝑃𝑃, 𝑖𝑖, 10) = $4301.8

c. For break-even:

From equation 1: 𝑃𝑃𝑃𝑃 = −20609.96 + 5ℎ ∗ (𝑃𝑃/𝐴𝐴, 𝑖𝑖, 10)

𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦
𝑃𝑃𝑃𝑃 = 0 �⎯⎯⎯� ℎ = 670.8 ℎ𝑟𝑟𝑟𝑟
Question 2:

Design-1 Design-2

Construction cost, $ $10,000,000 $15,000,000

Building maintenance cost, $35,000 $55,000

$/year

Patient benefits, $/year $800,000 $1,050,000

Discount rate, MARR 5% 5%

Life, years 30 30

Calculate AW for the two alternatives (Cost)

AW1= $10,000,000(A/P,5%,30)+$35,000= $685,500

AW2= $15,000,000(A/P,5%,30)+$55,000= $1,030,750

Add DN and order: DN, 1, 2

Compare 1-to-DN which is alt. 1

Calculate Δ (B/C)

Δ C = 685,500 - 0 = $685,500

Δ B = 800,000 – 0 = $800,000

Δ (B/C) = $800,000/$685,500 = 1.17

Since 1.17 > 1.0, design 1 is a survivor

Compare 2 to 1

∆B = $1,050,000 - $800,000= $250,000

∆C = $1,030,750 - $685,500= $345,250

∆(B/C) = $250,000/$345,250 = 0.72 < 1.0

Design 2 eliminated, and design 1 is selected

Question 3:

Option Option
Do Nothing
A C
MARR 10% 10% 10% Priorities
G 0 -2,000 0 1st Do Nothing
initial Alternative
2nd
cost -6,000 -6000 0 B
Alternative
3rd
machine -65,000 -30000 0 A
Savage 10,000 0 0
Revenues 17,000 17,000 0
O&M cost -4000

Net Cash flows

Option Option
Year Do Nothing B-DN A-B
A B
0 -71,000 -36,000 0 0 -36,000 -35,000
1 17,000 13,000 0 1 13,000 4,000
2 17,000 11,000 0 2 11,000 6,000
3 17,000 9,000 0 3 9,000 8,000
4 17,000 7,000 0 4 7,000 10,000
5 17,000 5,000 0 5 5,000 12,000
6 27,000 3,000 0 6 3,000 24,000
irr 11.49% 15.27%
Preferred B A

The preferred option is A

Question 4:
Question 5:

Question 6

Question 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
No

Answer C A D C A A B C B D B D A B D