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Engineering Economy - Selection of Alternatives

The document provides details on two homework problems for an engineering economy class. The first problem asks students to use the incremental analysis procedure and present worth method to determine the better machine alternative between Machine A and B based on their initial costs, revenues, costs, salvage values and service lives. The second problem asks students to use the present worth method to compare two investment project alternatives, A and B, based on their investment costs, net incomes, salvage values, useful lives, and select the better alternative for a 5-year service period.

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gemnikkic
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347 views

Engineering Economy - Selection of Alternatives

The document provides details on two homework problems for an engineering economy class. The first problem asks students to use the incremental analysis procedure and present worth method to determine the better machine alternative between Machine A and B based on their initial costs, revenues, costs, salvage values and service lives. The second problem asks students to use the present worth method to compare two investment project alternatives, A and B, based on their investment costs, net incomes, salvage values, useful lives, and select the better alternative for a 5-year service period.

Uploaded by

gemnikkic
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CE 22 Engineering Economy WFR

Homework No. 6 Comparison of Alternatives 5 February 2014 (Due: 12 February)

Homework on Comparison of Alternatives 1. A company is considering the purchase of one of two new machines. Relevant financial data on each machine are given on the table below: Machine A $ 3 400 $ 1 400 $ 100 3 Machine B $ 6 500 $ 1 600 $ 500 6

Initial cost Revenues less costs (per year) Salvage value Service life (years)

The feasible alternative that will be chose must provide service for a 6-year period. The MARR is 12% (a) With the increment analysis procedure (using the IRR method and PW formula), select the better alternative. (b) Show that the PW method on total cash flows results in the same selection. 2. A company is considering two mutually exclusive investment projects A and B, with information on investment, revenues, costs and project (useful) life provided in the table below. The MARR is 15% Alternative A Alternative B Investment cost $ 20 000 $ 32 000 Net income $ 6 000 $ 7 500 Salvage value $ 1 000 $ 2 000 Useful life 5 years 8 years a) Assuming repeatability and using the present worth (PW) method, compare the two alternatives. b) With the present worth (PW) method, select the better alternative for a 5-year service period.

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