Benefit-cost ratio of choosing the best carpet cleaner

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Reference no: EM132040708

MTU is considering acquiring a new industrial carpet cleaner machine. It has three options.

Clean Smart: purchase cost of $333704 and operating costs of $24468 in year 1, $20317 in year 2, and $20926 in year 3 (paid at the end of each year).

Shining Floor: purchase cost of $227609 and operating costs of $37657 in year 1, $36037 in year 2, and $35313 in year 3 (paid at the end of each year).

Spring Breeze: purchase cost of $262682 and operating costs of $21869 in year 1, $21058 in year 2, and $20000 in year 3 (paid at the end of each year).

Assume that MTU has a budget of $303091 for this investment and all carpet cleaners have a service life of 3 years. Based on the defender-challenger approach and given that the MARR is 9%, reinvestment rate is 6%, and minimum external rate of return is 7%, compute the incremental Benefit-Cost ratio of choosing the best carpet cleaner (in economic terms) and then indicate your recommendation as follows: - answer “0” (without the commas) if your recommendation is the Clean Smart; - answer “1” (without the commas) if your recommendation is the Shining Floor; - write down as your answer the value of the incremental B-C ratio if your recommendation is the Spring Breeze.

Reference no: EM132040708

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