11.The four mutually exclusive alternatives below are being compared using the B/C method.

What alternative,
if any, should be selected?

Incremental B/C When Compared with

Initial Alternative
Alternative Investment B/C Ratio
J K L M
J $40K 1.10 -
K $50K 0.96 0.40 -
L $66 1.22 1.42 2.14 -
M $90 0.89 0.72 0.80 0.80 -

A) Select J B) Select K C) Select L D) Select M

Ans: C

25.There are two mutually exclusive road improvement projects that result in the following costs and benefits.

Data A B
Annual Maintenance $685,500 $1,030,000
Costs
Annual Benefits Through $200,000 $450,000
Reduction in User Costs

Which is preferred and why?

Ans: Use incremental benefit-cost ratio analysis.
Increment (A up to B).
Incremental annual maintenance cost (C) = 1,030,000 - 685,500 = $344,500
Incremental annual user benefit (B) = 450,000 - 200,000 = $250,000
B/ C = 250,000 / 344,500 = 0.7256
B/ C < 1. Therefore, program A is preferred.

27.A transportation agency is considering a highway project that will cost $1.5 million dollars. The annual
benefits are expected to be $99,000 per year over a twenty year analysis period. Reusable material will
be valued at $300,000 at the end of the useful life. If the discount rate is 8% per annum, should the
project be constructed? Use benefit-cost analysis.
Ans: PW (B) = {A (P/A, i, n)} + {S (P/F, i, n)}
= (99,000) (P/A, 8%, 20) + (300,000) (P/F, 8%, 20)}
= (99,000) (9.818) + (300,000) (0.2145)
= 971,982 + 64,350 = $1,036,332
PW (C) = $1,500,000
B/C = PW (B)/PW (C) = 1,036,332 / 1,500,000 = 0.69
B/C is less than 1 and therefore, do not build.
49.Given the data for three mutually exclusive alternatives, find the best alternative using Future worth
Analysis. Assume alternatives are replaced at the end of their useful lives. MARR = 12%.

Data Alt. A Alt. B Alt. C

Initial Cost $6,000 $1,000 $1,500
Uniform Annual Benefit $525 $300 $450
Useful Life ,Years 20 5 10

Ans: Net Future worth needs to be computed for each alternative. Analysis Period = 20
Years.
Alt. A
EUAB - EUAC = 525 - 6,000 (A/P, 12%, 20) = 525 - 6,000 (0.1339) = - $278.40
NFW = - 278.40 (F/A, 12%, 20) = -278.40 (72.052) = - $20,059.28
Alt. B
EUAB - EUAC = 300 - 1,000 (A/P, 12%, 5) = 300 - 1,000 (0.2774) = $22.60
NFW =22.60 (F/A, 12%, 20) = 22.60 (72.052) = $1,628.38
Alt. C
EUAB - EUAC = 450 - 1,500 (A/P, 12%, 10) = 450 - 1,500 (0.1770) = $184.50
NFW = $184.50 (F/A, 12%, 20) = $184.50 (72.052) = $13,293.59
Choose Alt. C to maximize NFW.