Question

Use a benefit-cost ratio to make the best decision of selection

MARR = 0.04 , (P/A , i , N) manual entry = 13.590 N= 20

investment at t=0	annual benefit	PV(4%)of annual benefit	PV(4%)of annual operation cost
12,000,000	1,700,000	23,103,000	2038500
9,500,000	1,550,000	21,064,500	2853900

Answer 1

Answer:-

Benefit cost ratio also called profitablity index ratio. which indicates how much the present value of benefits cover initial investment.

so here BC = present value of net benefits / initial investment

=> project 1 :-

BC = ($23103000-$2038500) / $12000000

BC = $21064500 / $12000000

BC = 1.76

=> project 2 :-

BC = (21064500-$2853900)/$9500000

BC= $18210600/$9500000

BC = 1.92

here BC ratio of project 2 is maximum so we should go for it. 1.92>1.76