Question

X Y Z W V

IC $420,000 $540,000 $500,000 $200,000 $250,000
OM $45,000 $35,000 $50,000 $20,000 $40,000
B $110,000 $260,000 $80,000 $180,000 $90,000
D $20,000 $45,000 $10,000 $30,000 $10,000
Life/years $10 $20 $10 $20 $15

based on the above Me alternatives and using the B/C analysis, which alternative we should select ?i=10%.
O X
O Y
O Z
O W
O V

Answer 1

To select the best alternative using B/C analysis, calculate the benefit-cost ratio for each alternative.

Step-by-step explanation:

To select the best alternative using the B/C analysis, we need to calculate the benefit-cost ratio for each alternative. The benefit-cost ratio is calculated by dividing the present value of benefits by the present value of costs. We can use the formula: B/C ratio = (PV benefits / PV costs). Taking the example of alternative X, the present value of benefits is calculated as:

PV benefits = $420,000 / (1 + 0.1) ^ 10 = $148,742.04

The present value of costs is calculated as:

PV costs = $110,000 / (1 + 0.1) ^ 10 = $32,074.35

Now, calculating the B/C ratio for alternative X:

B/C ratio = $148,742.04 / $32,074.35 = 4.63

Perform similar calculations for the other alternatives and compare their B/C ratios to select the alternative with the highest B/C ratio.