Deck 6: Comparison and Selection Among Alternatives

Question 1

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.

Answer 1

IRR V) = 2.66% < 6%; Discard vacuum forming.
Incremental IRR F- D) = 19.43% > 6%; Discard drape forming. Incremental IRR Z- M) = 8.30% > 6%; Discard free blowing.
Pressure forming should be selected.

Question 2

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?

Answer 2

AWX) = $41,438.00
AWY) = $84,840.00 AWZ) = $105,926.00
Select the alternative with the largest positive annual worth.

Question 3

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?

Answer 3

AWA) = - $8566.00
AWB) = - $7195.50
The alternative with the least negative annual worth should be selected.

Question 4

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.

Question 5

A textile company is considering opening a production and shipping facility in Dallas to keep up with demand for its pillows. The 105,000- square- foot facility, if purchased, will require an initial investment of $255,000 and an annual operating cost of $68,500. It will have a $80,000 salvage value after 8 years. Alternatively, the facility can be leased with annual rent of $51,000 in year 1 and increasing by $1000 per year. If the company's minimum attractive rate of return is 6% per year, compounded quarterly, should the facility be purchased or leased?

Question 6

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.

Question 7

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?

Question 8

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.

Question 9

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?

Question 10

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.

Question 11

A manufacturing company is deciding between three maintenance plans for a new waste management system. Plan A needs a single prepayment of $59,000 at the beginning of the year and the contract needs to be renewed every 3 years. Plan B is a two- year contract and requires a payment of $19,470 at the end of year 1 and another payment of $20,060 at the end of year 2. Plan C provides a three- year services with two payments of $29,500 made at the end of years 1 and 3. Which maintenance plan should be selected based on the present worth method? Assume the company uses a MARR of 11% and a study period of 6 years.

Question 12

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.

Question 13

Two structural designs for a large public monument in Indonesia are under evaluation. Use the repeatability assumption and the CW method to determine which design should be selected if the service period of the monument is indefinite and the interest rate is 2% per year.

Question 14

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.

Question 15

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?

Question 16

Cassandra sets up a savings plan for her retirement. She plans to make a quarterly payment of $3250 into a savings account that earns 11% per year, compounded quarterly. After 3 years, she will have an option to continue making $3250 quarterly payments or to switch to an annual savings plan that earns higher interest of 11.25% per year and requires annual payments of $13,000. If she plans to retire 13 years from now, which option will offer more money in the savings plan at that time?

Question 17

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.

Question 18

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?

Question 19

Consider the three mutually exclusive alternatives below. Determine which alternative is preferable at an interest rate of 9% per year.

Question 20

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.

Question 21

VB Flantronics Inc. is a company that designs, makes, and sells computer and home entertainment sound systems, along with a line of headphones and microphones for personal digital media. The company is trying to decide whether it should purchase or lease a building for its manufacturing and research- and- development operation in China. If the building is leased, a payment will have to be made at the beginning of each year. The estimated costs are the following: Which alternative should be recommended based on the present worth method? Use a MARR of 9%.

Question 22

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?

Question 23

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.

Question 24

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).

Question 25

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.

Question 26

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.

Question 27

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.