Question

The 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 $10,000 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 19% probability of moderate flooding and a 9% probability of severe flooding. Using a MARR of 6% per year and a service life of 8 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 Nothing" alternative is $ (Round to the nearest whole number.) The expected EUAC for Alternative 2 is $ (Round to the nearest whole number.) The EUAC for Alternative 3 is $ (Round to the nearest whole number.) (b) The most economical alternative is OA. Do nothing B. Alternative 3 OC. Alternative 2

Answer 1

The expected EUAC for the 'Do Nothing' alternative is approximately $2,951, for Alternative 2 is approximately $2,784, and for Alternative 3 is approximately $3,989. The most economical alternative is Alternative 2.

Step-by-step explanation:

The first step is to calculate the expected EUAC (Equivalent Uniform Annual Cost) for each alternative.

For the 'Do Nothing' alternative, we need to calculate the expected cost for a moderate flood and a severe flood. The expected EUAC is the sum of the present values of these costs over the 8-year service life, with a discount rate of 6% per year.

For Alternative 2, the expected EUAC is the present value of the initial expenditure plus the expected cost of damage in a severe flood (discounted over the 8-year service life).

For Alternative 3, the expected EUAC is the present value of the initial expenditure (discounted over the 8-year service life).

After performing these calculations, the expected EUAC for the 'Do Nothing' alternative is approximately $2,951, for Alternative 2 is approximately $2,784, and for Alternative 3 is approximately $3,989.

Therefore, the most economical alternative is Alternative 2.

Answer 2

The expected EUAC for the "Do Nothing" alternative is 3,150. The expected EUAC for Alternative 2 is 20,900.

The EUAC for Alternative 3 is 32,000. the most economical alternative is Alternative 2.

The damage in a moderate flood is 11,000, and in a severe flood, it is 24,000. Since there is a 19% probability of moderate flooding and a 9% probability of severe flooding, we can calculate the expected annual cost as follows:

EUAC = (Probability of moderate flooding * Cost of moderate flood) + (Probability of severe flooding * Cost of severe flood)

= (0.19 * 11,000) + (0.09 * 24,000)

The expected EUAC for the "Do Nothing" alternative is 3,150.

The one-time initial expenditure is 20,000, and the building can withstand moderate flooding without any damage and severe flooding with only a 10,000 damage. The expected EUAC can be calculated as follows:

EUAC = Initial expenditure + (Probability of severe flooding * Additional damage cost)

= 20,000 + (0.09 * 10,000)

The expected EUAC for Alternative 2 is 20,900.

The one-time initial expenditure is 32,000, and the building can withstand any flooding with no damage at all. Since there is no additional damage cost, the expected EUAC is equal to the initial expenditure: The EUAC for Alternative 3 is 32,000.