Engineering Economics/Construction Project Management Question
QUESTION 1
Your company is evaluating the three mutually exclusive mechanical systems shown in the table below. Using a MARR of 15%, which alternative should be chosen?
|
A
|
B
|
C
|
|
Investment
|
$110,000
|
$125,000
|
$138,000
|
|
Useful life
|
10 years
|
10 years
|
10 years
|
|
Total annual expenses
|
$53,800
|
$51,625
|
$45,033
|
a. Alternative C
b. Alternative A
c. Alternative B
QUESTION 2
You are analyzing six mutually exclusive alternatives using the IRR method. The useful life of each alternative is 10 years and the MARR is 10%. Cash flow information is given in Figures 1 & 2 below.
Figure 1. Total Cash Flows for each Alternative
|
|
A
|
B
|
C
|
D
|
E
|
F
|
|
Capital Investment
|
$900
|
$1,500
|
$2,500
|
$4,000
|
$5,000
|
$7,000
|
|
Annual Revenues
|
150
|
276
|
400
|
925
|
1,125
|
1,425
|
|
IRR on total CF
|
10.6%
|
13.0%
|
9.6%
|
19.1%
|
18.3%
|
15.6%
|
Figure 2. Incremental Analysis using the IRR Method
|
|
A
|
B
|
C
|
D
|
E
|
F
|
|
Capital Investment
|
$900
|
$1,500
|
$2,500
|
$4,000
|
$5,000
|
$7,000
|
|
Annual Revenues
|
150
|
276
|
400
|
925
|
1,125
|
1,425
|
|
IRR on total CF
|
10.6%
|
13.0%
|
9.6%
|
19.1%
|
18.3%
|
15.6%
|
a. Alternative B
b. None of the above
c. Alternative D
d. Alternative A
e. Alternative E
f. Alternative F
g. Alternative C
QUESTION 3
Four mutually exclusive projects are shown below. Which, if any, of these projects should be selected? Please use an interest rate of 12%.
|
|
Alt. A
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Alt. B
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Alt. C
|
Alt, D
|
|
Investment
|
$23M
|
$18M
|
$31M
|
$26M
|
|
Annual O&M
|
$1.8M
|
$1.2M
|
$2.1M
|
$2.0M
|
|
Salvage Value
|
$2.4M
|
$2.2M
|
$4.0M
|
$3.1M
|
|
Annual Benefits
|
$5.0M
|
$4.5M
|
$6.5M
|
$5.8M
|
|
Useful Life
|
50 years
|
50 years
|
50 years
|
50 years
|
Useful Life 50 years 50 years 50 years 50 years
a. Alt. C
b. Alt. A
c. Alt. D
d. None should be selected
e. Alt. B