3 A company is considering 2 altematives shown in the table

3. A company is considering 2 altematives, shown in the table below. The company assumes an MARR-15%. Option A Option B $2,000 $800 800 $800 (a) (8 pts.) Which alternative has the shorter DPBP (payback periody? (b) (12 pts.) Using a B/C ratio method for comparison, which option should the company selecet?

Solution

Discount Payback Period will be calculated as below

=500/(1.15)+500/(1.15)^2+800/(1.15)^3=1338

As Intial Cost gets covered in 3 rd year for Project A

Discount Payback Period will be calculated as below

=800/(1.15)+800/(1.15)^2+1000/(1.15)^3+1000/1.15^4

As Intial Cost gets covered in 4th year for Project B

hence We should choose project A

Ans 2)

B/C for A=(500/(1.15)+500/(1.15)^2+800/(1.15)^3+800/(1.15^4)/1000=1.796

B/C for B=(800/(1.15)+800/(1.15)^2+1000/(1.15)^3+1000/1.15^4)/2000=1.2649

As per B/C ratio for A > B/C ratio for B hence to choose A by B/C method