Reference no: EM131316114

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	Alt. B	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