Exam 6: Comparison and Selection Among Alternatives

An insulated shipping container supplier is considering expanding its product line. Three materials with different insulation properties are under consideration. The following information is prepared for the economic evaluation of the best material. If the company's MARR is 4% per year and the study period is 5 years, use an AW- based incremental rate of return equation to determine which alternative is preferred. Assume the salvage value is negligible.

Two flash vaporizer machines are considered for the upgrade of biodiesel production. An engineer is asked to perform analyses to select the best machine. He prepares the following information for the evaluation. Machine X has a useful life of 8 years and machine Y has a useful life of 11 years. Compute the market value of Machine Y at the end of year 8 and determine which machine should be selected based on annual worth method using an interest rate of 13% per year and a study period of 8 years.

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?

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.

A dentist is deciding between two X- ray machines for his new office. Estimated costs for each machine are the following: Which machine should be recommended based on the annual worth method? Use a MARR of 15% and a study period of 6 years.

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?

A large textile company is trying to decide among three alternatives of sludge dewatering processes. The costs associated with these alternatives are shown below. Alternative Y will need an upgrade of $9700 at the end of year 2. At the end of year 2, alternative Z would be replaced with another alternative Z having the same installed and operating costs. If the MARR is 14% per year, which alternative should be chosen?

A slip sheet manufacturer is considering two machines. An engineer is asked to perform analyses to select the best machine. She prepares the following information for the evaluation. All machines have a useful life of 5 years. If the company's MARR is 4% per year, which machine should be selected.

A major bakery- cafe chain is evaluating whether they should consolidate its two offices into one location when the two leases expire. In addition, the company also needs to decide if they want to purchase or lease the new location. The estimated costs for these three alternatives are as follows: Which alternative should be selected based on the annual worth method? Use a MARR of 11% and a study period of 12 years).

A thermoplastic film manufacturer is trying to decide between four types of thermoforming molding processes to be added to its molding operation. The estimated costs and revenue are shown below. Compare them on the basis of rate of return and determine which process should be selected if the company's MARR is 6% per year.

Two grandparents are considering purchasing a baby bond for their first grandson. They are deciding between two bonds with the same face value of $42,000. Both bonds are offered at the same price of $37,000. Bond A has interest of 2.5% per year, payable quarterly, and matures in 6 years. Bond B, issued 2 years ago, has interest of 2.75% per year, payable semiannually, and a 8- years maturity date. If the current market rate is 3% per year, compounded quarterly, which bond should be purchased?

Two delivery methods have been proposed for a standard delivery method for new bridge constructions in Oregon to overcome traditional design- bid- build models that do not adequately account for site conditions and constructability, and often lead to additional expenses. One alternative must be selected to represent the delivery method specified in the RFP. Based on data from recent bridge construction projects of comparable size, we can estimate the savings from reduced redesign costs, risk management costs, and overhead costs during the life of the construction contract over the traditional delivery model. The estimated costs of a 18- month contract are the following: Which alternative should be selected based on the present worth method? Use a MARR of 4%, compounded monthly. Assume other benefits and costs are negligible.

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?

A manufacturing firm is considering two models of lathes. Model A will have an initial cost of $29,000, an operating cost of $2750, and a salvage value of $6500 after 6 years. Model B will have an initial cost of $36,500, an operating cost of $2200, and a $7750 resale value after 12 years. At an interest rate of 10% per year, which model should the consulting firm buy?

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: 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.

A manufacturer of automated optical inspection AOI) devices is deciding on a project to increase the productivity of the manufacturing processes. The estimated costs for the two feasible alternatives being compared are shown below. Use the ERR method to determine which alternative should be selected if the analysis period is 8 years and the reinvestment rate equals the company's MARR of 4% per year.

You are deciding between three types of water heaters. The associated costs are shown below. At the end of year 5, the electricity and oil water heaters need to be replaced with the same model at the purchased prices. Which alternative should be selected on the basis of their future worth at an interest rate of 12% per year? e Hint: The estimated annual cost of operation for gas and oil heaters equals 365 x 41045/EF x Fuel Cost per Btu and the estimated annual cost of operation for electric water heaters equals 365 x 12.03/EF x Electricity Cost per kWh.

A manufacturer of Neighborhood Electric Vehicles NEVs) plans to upgrade its parts inventory tracking system. Two alternatives are under consideration. The estimated costs of each alternative are provided below. At the end of 9 years, alternative E will need to be upgraded with additional costs of $19,300 over the initial cost of the system. The upgrade will reduce the annual maintenance costs by $2000 over the next 9 years. Which alternative should be selected on the basis of their future worth at an interest rate of 17% per year and a study period of 18 years? Assume negligible salvage value.

The Pentagon is deciding between two models of light- duty support vehicles proposed by two high- technology defense contractors. The costs associated with each model are shown below. Which model should be selected if the MARR is 16% per year based on the future worth method?

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: 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.