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- Data in the matrix below indicates COST expected from 3 alternatives under 4 states of nature. Determine which alternative is dominant using With and Without Probability Use every methodThe following three mutually exclusive alternative proposals are being considered for flood proofing a factory building that is located in an area subject to occasional flooding by a nearby river. 1. Do nothing: Damage to the building in a moderate flood is $11,000 and in a severe flood it is $24,000. 2. Protect the building with a one-time initial expenditure of $20,000 so that the building can withstand moderate flooding without any damage and withstand severe flooding with only a$12,000 damage. 3. Protect the building with a one-time initial expenditure of $32,000 so that the building can withstand any flooding with no damage at all. In any year, there is a 21% probability of moderate flooding and a 10% probability of severe flooding. Using a MARR of 8% per year and a service life of 12 years, determine which of the three alternatives is the most economical. (a) Calculate EUAC values for each scenario (use negative numbers for costs) The expected EUAC for the "Do…Cost benefit analysis allows a business owner to identify the investment alternative with the highest return. True False
- Identify the following as primarily private or public sector characteristics:a. Large investmentb. No profitsc. Funding from feesd. MARR-based selection criteriae. Low interest ratef. Short project life estimateg. DisbenefitsA benefit-cost ratio is showing the relationship between the relative costs and benefits of a proposed project, expressed either in monetary or in qualitative terms. TRUE (or) FALSEAll of the following are true when formulating mutually exclusive bundles of independent projects, except: (a) One of the bundles is the do-nothing project. (b) A bundle may consist of only one project. (c) The capital limit may be exceeded as long as it is exceeded by less than 3%. (d) A bundle may include contingent and dependent projects.
- The estimated first cost of a permanent national monument is $2 million with annual benefits and disbenefits estimated at $360,000 and $42,000, respectively. The B/C ratio at 6% per year is closest to: (a) 0.16 (b) 0.88 (c) 1.73 (d) 2.65There are five independent projects available to be financed by a certain public institution. The following table shows the annual equivalent benefits and costs of each one: a) the institution wishes to invest money as long as the conventional B/C ratio is at least equal to one. Which alternative should be selected for funding? b) What is the order of the projects, from best to worst?Show in excel A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4, 281 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit where they will earn 15%. (a) Identify six combinations of project investments and a bank deposit which exhaust the budget. (b) Which of the above combinations should the firm choose: when the reinvestment rate is 15%? (ii) when the reinvestment rate is 20%?
- Two alternatives, identified as X and Y, are evaluated using the B/C method. Alternative Y has a higher total cost than X. If the B/C ratios are 1.2 and 1.0 for alternatives X and Y, respectively, which alternative should be selected? WhyAs part of the rehabilitation of the downtown area of a southern U.S. city, the Parks and Recreation Department expects to develop the space below several overpasses into basketball, handball, miniature golf, and tennis courts. The estimates are: initial cost of $190,000, life of 20 years, and annual M&O costs of $21,000. The department expects 20,000 people per year to use the facilities an average of 2 hours each. The value of the recreation has been conservatively set at $1.00 per hour. At a discount rate of 6% per year, what is the B/C ratio for the project?All of the following are correct when a capital budgeting problem is solved using the 0-1 integer linear programming model, except: (a) Partial investment in a project is acceptable. (b) The objective is to maximize the present worth of the investments (c) Budget constraints may be present for the first year only or for several years. (d) Contingent and dependent project restrictions may be considered