ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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please solve with formulas like (F/P, 5% , n)
not with the excell.
A.3. A sanitary sewer can be constructed using either a deep cut or a lift station, with the follow-
ing costs estimnated. Using incremental rate of return analysis techniques, determine which
alternative should be selected for an MARR of 7 percent.
Deep-cut
alternative
Lift-station
alternative
235,000
15,000
1,800
275,000
Installation cost of pipe ($)
Installation cost of lift station ($)
Annual maintenance costs ($)
Expected life (yr)
400
40
40
(Ans. IROR = 4.73% < 7%; select lift station)
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Transcribed Image Text:please solve with formulas like (F/P, 5% , n) not with the excell. A.3. A sanitary sewer can be constructed using either a deep cut or a lift station, with the follow- ing costs estimnated. Using incremental rate of return analysis techniques, determine which alternative should be selected for an MARR of 7 percent. Deep-cut alternative Lift-station alternative 235,000 15,000 1,800 275,000 Installation cost of pipe ($) Installation cost of lift station ($) Annual maintenance costs ($) Expected life (yr) 400 40 40 (Ans. IROR = 4.73% < 7%; select lift station)
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Introduction:

The minimum acceptable rate of return, also known as the hurdle rate, is the lowest rate of return that the project must achieve in order to cover the costs of the investment. Projects are also evaluated by discounting future cash flows to the present by the hurdle rate in order to obtain the net present value (NPV), which measures the difference between the PV (present value) of cash inflows and the PV (present value) of cash outflows.

In general, the hurdle rate is equal to the company's costs of capital, which are a mix of the cost of stock and the cost of debt. Managers generally raise the hurdle rate for riskier projects or when the organisation is assessing various investment alternatives.

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