Exam 6: Comparison and Selection Among Alternatives

Two advanced thermal insulating and anti- condensation protection alternatives have been proposed for new Antarctica marine vessels subject to the harsh marine environment. One alternative must be selected. Estimated savings from reduced total installation and maintenance costs over conventional insulation are the following: Alternative Delta- T Alpha- B Installed cost \ 13,000 \ 15,000 Annual savings \ 4750 \ 6250 Life, years 8 8 Which alternative should be recommended based on the present worth method? Use a MARR of 18 percent and a study period of 8 years. Assume negligible salvage values.

A dentist is deciding between two X- ray machines for his new office. Estimated costs for each machine are the following: Machine A B Installed cost \ 36,000 \ 38,000 Annual maintenance cost \ 1250 \ 950 Market value at year 6 \ 5750 \ 6250 Life, years 6 6 Which machine should be recommended based on the annual worth method? Use a MARR of 15% and a study period of 6 years.

A medical mobility equipment manufacturer is considering two alternatives as part of an upgrade of its power wheelchairs assembly. Alternative A has an installed cost of $10,000, net annual revenue of $6000, and a useful life of 3 years. Alternative B has an installed cost of $20,000, net annual revenue of $6350 and a useful life of 6 years. At the end of year 3, alternative A would be replaced with another alternative A having the same installed cost and net annual revenues. If the MARR is 8% per year, which alternative (if any) should be selected based on the present worth method? Assume negligible salvage value.

A major defense supplier is planning for the manufacturing of its Desert Hawk VII Unmanned Aerial Systems, a hand- launched air vehicle that provides intelligence, reconnaissance, and surveillance capabilities. Three manufacturing facilities are under consideration. Each site provides the same manufacturing capability but has different costs to manufacture and transport the system to the customers. The estimated costs are provided in the table below. e lternative Texas Plant Utah Plant MinnesotaPlant t up costs \ 720,000 \ 770,000 \ 755,000 nnualoperating costs \ 27,500 \ 22,500 \ 24,500 alvage Value, at end of year8 \ 420,000 \ 430,000 \ 445,000 ransportationcosts per unit \ 2000 \ 2250 \ 2300 seful lives, years 8 9 10 lternative Texas Plant Utah Plant MinnesotaPlant t up costs \ 720,000 \ 770,000 \ 755,000 nnualoperating costs \ 27,500 \ 22,500 \ 24,500 alvage Value, at end of year8 \ 420,000 \ 430,000 \ 445,000 ransportationcosts per unit \ 2000 \ 2250 \ 2300 seful lives, years 8 9 10 If the company has to deliver 300 units per year for 8 years, which facility should be selected based on the present worth method? Assume the company uses a MARR of 5% and a study period of 8 years.

HealthRx, a major manufacturer of non- invasive breast and cervical cancer detection products is planning to expand its market in Asia. Three single- patient- use disposable devices based on its proprietary technology to identify cancers and precancers painlessly and noninvasively by scanning the cervix with light are being considered. The costs to manufacture these devices are the following: Alternative Soft Touch Light Touch Gentle Touch Initial costs \ 500,000 \ 520,000 \ 535,000 Annual operating costs \ 15,000 \ 14,500 \ 14,000 Salvage Value \ 70,000 \ 80,000 \ 85,000 Sell Price per unit \ 3500 \ 3600 \ 3650 If the company sells 1000 units per year, which device should be selected based on the present worth method? Assume the company uses a MARR of 11% and wants to recover its investment in 7 years.

Consider the three mutually exclusive alternatives below. At the end of their useful lives, alternatives X and Z will be replaced with identical replacements so that a 10- year service requirement is met. If the MARR is 3% per year, which alternative (if any) should be chosen? Alternative X Y Z Capital Investment \ 300,000 \ 425,000 \ 500,000 Annual savings \ 68,750 \ 108,750 \ 188,750 Salvage value \ 90,000 \ 125,000 \ 140,000 Life, years 10 20 5

Nadia recently moved to Celebration, Florida, an unincorporated master- planned community in Osceola County that connects directly to the Walt Disney World parks. To support the planned community's environmentally friendly transit system and to save on transportation costs, she wants to buy a new Neighborhood Electric Vehicle. She is looking into three models of the NEVs and has been provided with the following information. Compare the alternatives shown below on the basis of rate of return and determine which model should be purchased if her personal MARR is 9% per year. ernative Dynasty Might- E Zenn tial costs \ 13,000 \ 13,550 \ 14,000 nual expenses \ 4781 \ 5281 \ 5081 nual Saving \ 6781 \ 7581 \ 7581 vage value \ 1300 \ 1600 \ 2000 e. years 10 10 10 (\%) 9.64 11.93 13.26

Consider the three mutually exclusive alternatives below. Determine which alternative is preferable at an interest rate of 9% per year. Alternative Capital investment \ 400,000 \ 4000 \ 150,000 Annual expense \ 189,000 \ 94,500 \ 134,000 Annual revenue \ 309,000 \ 194,500 \ 234,000 Salvage value \ 65,000 \ 130,000 Life, years 24 12

A leading cancer research institution received a gift for cancer research. The institution is deciding whether to use the gift to create an endowment fund or to build a new research facility. If the gift is used to establish an endowment fund, the fund would award research funding and scholarships totaling $9.75 million per year with the first awards to be granted at the end of next year and continue each year perpetually. Alternatively, if the gift is used to building an integrative cancer research facility, the construction of the facility will cost $16.5 million and the building is expected to be renovated every 10 years at a cost of $3.3 million. The annual maintenance costs are expected to be $1 million. If the facility is expected to last forever, which alternative should be selected at an interest rate of 2% per year?

Compare the alternatives shown below on the basis of their future worth, using an interest rate of 14% per year, compounded quarterly. Which alternative should be selected? Alternative A B Initial costs \ 421,000 \ 1,171,000 Quarterly revenues \ 46,000 \ 71,000 Quarterly expenses \ 17,000 \ 18,500 Disposal costs \ 6750 \ 6250 Life, years 12 24