Exam 4: Comparison Methods: Part I

A manager is considering two technological lines to produce candies. The first one requires $1 million in initial investment and produces 150 kilograms (kg)of candies per day. The second one requires $1.3 million of initial investment and produces 200 kg of candies per day. Assuming the same service life of six years for both lines, a 5% annual interest rate and the price of candies of $4/kg, which line should the manager acquire?

NB Power wants to assess the opportunity to install and use a photovoltaic system to produce electricity from solar energy. The unit cost of electricity currently produced by the thermal power plant is $0.06 per kilowatt-hour. The photovoltaic system is characterized by the following: Batteries must be replaced every 5 years while power control is replaced every 10 years. Assuming a service life of 20 years, annual interest rate of 10%, capacity of the photovoltaic system of 30 kilowatt-hours per day and ignoring the installation cost, should NB Power implement the system?

The minimum acceptable rate of return (MARR)is

A contingent project is an example of

Two mutually exclusive projects with the same service lives of 2 years are characterized by first costs of $100 million and $120 million respectively and annual savings of $60 million and $70 million respectively. If the MARR is 10%, which one should be chosen on the basis of the present worth comparison method?

I spend $15 per week on bus fares to work. One day I decide to buy a mountain bike for $2000 and to ride to work instead. Assuming I work 50 weeks in a year, what is the payback time for this investment?

A municipality decided to build a new bridge to accommodate the city's growing traffic across the river. It has to pay $200 000 to construct the bridge plus $15 000 per year for its maintenance. Assuming that the bridge will have an infinite service life, calculate the present worth of the project at 10% interest rate.

Christine Robichaud, an engineer at Opus Ltd., has a $70 000 budget for upgrading the company's warehouse. She has calculated that the improvements could be completed in three months from now and would consume the entire budget. Due to these improvements the company saves $9 000 by the end of the first year, $14 000 by the end of the second year, and $35 000 by the end of the third year, $54 000 by the end of the fourth year and $17 000 by the end of the fifth year. What is the payback period for this project?

I can invest for a pension in either the Senex or the Geriatrix pension plan. Senex requires me to invest $1500 a year for the next 15 years (beginning one year from now), whereas Geriatrix requires an immediate deposit of $5 000 and 15 subsequent annual investment of $1 200 a year (also starting one year from now ). If my MARR is 15%, how much greater is the present cost to me of the series of payments I would make to Geriatrix versus the series of payments I would make to Senex?

If you have reliable economic forecast for five years only, and you would like to evaluate two alternatives with five and six years service lives, the best method to do so is

The best way to compare two projects with unequal lives is the