Question

Five independent and mutually exclusive projects are available for funding by certain public agency.

The following tabulation shows the equivalent annual benefits and cost of each. All AW has been calculated. (10ptos)

Project	Annual Benefits	Annual Cost
A	$1,800,000	$2,000,000
B	5,600,000	4,200,000
C	8,400,000	6,800,000
D	2,600,000	2,800,000
E	6.600.000	5,400,000

1. Which plan should be adopted using incremental analysis for  of Mutually Exclusive Projects. ** FAVOR DE CALCULAR CONVENTONAL BENEFIT RATIO A TODOS Y ELIMINAR LOS MENORES B/C DE (1) UNO. LUEGO CALCULE INCREMENTAL CON LOS QUE QUEDEN.
2. Remember to sort Project from lower cost to higher before incremental analysis.

Answer 1

B/C of A = 1800000 / 2000000 = 0.9

B/C of B = 5600000 / 4200000 = 1.33

B/C of C = 8400000 / 6800000 = 1.24

B/C of D = 2600000 / 2800000 = 0.93

B/C of E = 6600000 / 5400000 = 1.22

As only projects B, C & E have B/C more than 1, only these will be considered for incremental analysis

Arranging project from lower annual cost to higher cost

B < E < C

Incremental analysis between (E - B)

Incremental B/C of (E-B) = (6600000-5600000) / (5400000-4200000) = 0.83

As incremental B/C is less than 1, B option is selected.

Incremental analysis between (C - B)

Incremental B/C of (C-B) = (8400000-5600000) / (6800000-4200000) = 1.08

As incremental B/C is more than 1, C option is selected.

Finally C option must be selected