Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
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Question
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Chapter D, Problem 94P
To determine

The annual revenue of bid A.

Expert Solution & Answer
Check Mark

Answer to Problem 94P

The correct answer is option  (c)0.3.

Explanation of Solution

Concept used:

Write the expression for present worth of cost.

PWC=C+AO[( 1+i)n1i( 1+i)n] ...... (I)

Here, the overall cost is C, annual maintenance is AO, interest rate is i and time period is n.

Write the expression for present worth of benefit.

PWB=B[( 1+i)n1i( 1+i)n] ...... (II)

Here, the annual benefit is B.

Calculations:

Calculate the overall cost of bid B.

C=$6.2 M+$0.03 M+$0.7 M+$0.01 M=$6.94 M

Calculate the present worth of cost of bid B.

Substitute $6.94 M for C, $0.75 M for AO, 5% for i and 30 for n in Equation (I).

PWC=$6.94 M+$0.075 M[ ( 1+0.05) 3010.05 ( 1+0.05) 30]=$6.94 M+$0.075 M(15.3724)=$5.87 M

Calculate the annual benefit of bid B.

B=$0.4 M+$0.25 M=$0.65 M

Calculate the present worth of benefit of bid B.

Substitute $0.65 M for B, 5% for i and 30 for n in Equation (II).

PWB=$0.65 M[ ( 1+0.05) 3010.05 ( 1+0.05) 30]=$0.65 M[ ( 1.05) 3010.05 ( 1.05) 30]=$0.65 M(15.3724)=$9.992 M

Calculate the benefit cost ratio of bid B.

B-C ratio=PWBPWC=$9.992 M$5.87 M=1.702

Calculate the overall cost of bid A.

C=$4.2 M+$0.6 M+$0.35 M+$0.6 M=$5.75 M

Calculate the present worth of cost of bid A.

Substitute $5.75 M for C, $0.05 M for AO, 5% for i and 30 for n in Equation (I).

PWC=$5.75 M+$0.05 M[ ( 1+0.05) 3010.05 ( 1+0.05) 30]=$5.75 M+$0.05 M(15.3724)=$4.98 M

Calculate the annual benefit of bid A.

B=X+$0.25 M

Calculate the present worth of benefit of bid A.

Substitute (X+$0.25 M) for B, 5% for i and 30 for n in Equation (II).

PWB=(X+$0.25 M)[ ( 1+0.05) 3010.05 ( 1+0.05) 30]=(X+$0.25 M)[ ( 1.05) 3010.05 ( 1.05) 30]=(X+$0.25 M)(15.3724)=15.3724X+$3.843 M

Calculate the benefit cost ratio of bid A.

B-C ratio=15.3724X+$3.843M$4.98 M=3.087X+0.7717

For both options to be equivalent, the benefit cost ratio of both bids should be Equal.

1.702=3.087X+0.7717X=$0.301 M

The annual revenue of bid A is $0.301 M.

Conclusion:

Thus, the correct answer is option  (c)0.3.

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Chapter D Solutions

Engineering Economic Analysis

Ch. D - Prob. 11PCh. D - Prob. 12PCh. D - Prob. 13PCh. D - Prob. 14PCh. D - Prob. 15PCh. D - Prob. 16PCh. D - Prob. 17PCh. D - Prob. 18PCh. D - Prob. 19PCh. D - Prob. 20PCh. D - Prob. 21PCh. D - Prob. 22PCh. D - Prob. 23PCh. D - Prob. 24PCh. D - Prob. 25PCh. D - Prob. 26PCh. D - Prob. 27PCh. D - Prob. 28PCh. D - Prob. 29PCh. D - Prob. 30PCh. D - Prob. 31PCh. D - Prob. 32PCh. D - Prob. 33PCh. D - Prob. 34PCh. D - Prob. 35PCh. D - Prob. 36PCh. D - Prob. 37PCh. D - Prob. 38PCh. D - Prob. 39PCh. D - Prob. 40PCh. D - Prob. 41PCh. D - Prob. 42PCh. D - Prob. 43PCh. D - Prob. 44PCh. D - Prob. 45PCh. D - Prob. 46PCh. D - Prob. 47PCh. D - Prob. 48PCh. D - Prob. 49PCh. D - Prob. 50PCh. D - Prob. 51PCh. D - Prob. 52PCh. D - Prob. 53PCh. D - Prob. 54PCh. D - Prob. 55PCh. D - Prob. 56PCh. D - Prob. 57PCh. D - Prob. 58PCh. D - Prob. 59PCh. D - Prob. 60PCh. D - Prob. 61PCh. D - Prob. 62PCh. D - Prob. 63PCh. D - Prob. 64PCh. D - Prob. 65PCh. D - Prob. 66PCh. D - Prob. 67PCh. D - Prob. 68PCh. D - Prob. 69PCh. D - Prob. 70PCh. D - Prob. 71PCh. D - Prob. 72PCh. D - Prob. 73PCh. D - Prob. 74PCh. D - Prob. 75PCh. D - Prob. 76PCh. D - Prob. 77PCh. D - Prob. 78PCh. D - Prob. 79PCh. D - Prob. 80PCh. D - Prob. 81PCh. D - Prob. 82PCh. D - Prob. 83PCh. D - Prob. 84PCh. D - Prob. 85PCh. D - Prob. 86PCh. D - Prob. 87PCh. D - Prob. 88PCh. D - Prob. 89PCh. D - Prob. 90PCh. D - Prob. 91PCh. D - Prob. 92PCh. D - Prob. 93PCh. D - Prob. 94PCh. D - Prob. 95PCh. D - Prob. 96PCh. D - Prob. 97PCh. D - Prob. 98PCh. D - Prob. 99PCh. D - Prob. 100PCh. D - Prob. 101PCh. D - Prob. 102PCh. D - Prob. 103PCh. D - Prob. 104PCh. D - Prob. 105PCh. D - Prob. 106PCh. D - Prob. 107PCh. D - Prob. 108PCh. D - Prob. 109PCh. D - Prob. 110PCh. D - Prob. 111PCh. D - Prob. 112PCh. D - Prob. 113PCh. D - Prob. 114PCh. D - Prob. 115PCh. D - Prob. 116PCh. D - Prob. 117PCh. D - Prob. 118PCh. D - Prob. 119PCh. D - Prob. 120PCh. D - Prob. 121PCh. D - Prob. 122PCh. D - Prob. 123PCh. D - Prob. 124PCh. D - Prob. 125PCh. D - Prob. 126PCh. D - Prob. 127PCh. D - Prob. 128PCh. D - Prob. 129PCh. D - Prob. 130PCh. D - Prob. 131PCh. D - Prob. 132PCh. D - Prob. 133PCh. D - Prob. 134PCh. D - Prob. 135PCh. D - Prob. 136PCh. D - Prob. 137PCh. D - Prob. 138PCh. D - Prob. 139P
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