You have been requested to recommend one of the mutually exc

You have been requested to recommend one of the mutually exclusive industrial sanitation control systems that are given below. If MARR is 12% per year, which system would you select? Assume that not having to re-invest in five year is an added benefit of the Vacuum-led. Use the B-C method. Alternative Gravity-fed Vacuum-led Capital investment Annual receipts less expenses Life in years $25,000 S34,400 7,000 5 7,000 10

Solution

Year

Discount factor

Gravity fed

Discounted Cashflow

Vaccum fed

Discounted Cashflow

0

1.0000

25000

25000

34400

34400

1

0.8929

7000

6250.3

7000

6250.3

2

0.7972

7000

5580.4

7000

5580.4

3

0.7118

7000

4982.6

7000

4982.6

4

0.6355

7000

4448.5

7000

4448.5

5

0.5674

7000

3971.8

7000

3971.8

6

0.5066

7000

3546.2

7

0.4523

7000

3166.1

8

0.4039

7000

2827.3

9

0.3606

7000

2524.2

10

0.3220

7000

2254

Discounted Benefit

25233.60

39551.40

Discounted Cost

25000.00

34400.00

B:C

1.01

1.15

Looking at the B:C ratio, Vacuum-led is better than Gravity-fed

Year	Discount factor	Gravity fed	Discounted Cashflow	Vaccum fed	Discounted Cashflow
0	1.0000	25000	25000	34400	34400
1	0.8929	7000	6250.3	7000	6250.3
2	0.7972	7000	5580.4	7000	5580.4
3	0.7118	7000	4982.6	7000	4982.6
4	0.6355	7000	4448.5	7000	4448.5
5	0.5674	7000	3971.8	7000	3971.8
6	0.5066			7000	3546.2
7	0.4523			7000	3166.1
8	0.4039			7000	2827.3
9	0.3606			7000	2524.2
10	0.3220			7000	2254
	Discounted Benefit	25233.60			39551.40
	Discounted Cost	25000.00			34400.00
	B:C	1.01			1.15