Skip to main content

Both types of BCR (FW) for Machine A

Short answer

Use future worth factors: FW(Benefits)=Rs 47,812, FW(O&M)=Rs 15,937, FW(Investment)=Rs 15,562, salvage=Rs 1,500. Conventional B/C=1.59, modified B/C=2.27 (both >1, acceptable).

Machine A: initial investment Rs. 6000, annual benefits Rs. 3000, O & M cost Rs. 1000, salvage value Rs. 1500, MARR 10%. Evaluate both types of BCR (FW formulation). Take useful life = 10 years.

Data: I = 6,000; annual benefit 3,000; annual O&M 1,000; S = 1,500 (at year 10); n = 10; MARR = 10%.

 yr 0: -6,000      yr 1..10: +3,000 benefit, -1,000 O&M      yr 10: +1,500

Factors: (F/A, 10%, 10) = 15.9374, (F/P, 10%, 10) = 2.5937

  • FW(B) = 3,000 × 15.9374 = Rs 47,812
  • FW(O&M) = 1,000 × 15.9374 = Rs 15,937
  • FW(I) = 6,000 × 2.5937 = Rs 15,562
  • S = Rs 1,500 (already at year 10)

Conventional B/C = FW(B) / [FW(I) + FW(O&M) − S] = 47,812 / (15,562 + 15,937 − 1,500) = 47,812 / 30,000 = 1.594

Modified B/C = [FW(B) − FW(O&M)] / [FW(I) − S] = (47,812 − 15,937) / (15,562 − 1,500) = 31,875 / 14,062 = 2.267

Answer: conventional B/C = 1.59, modified B/C = 2.27. Both exceed 1, so Machine A is acceptable.

✓ Answer checked by Claude Opus 5.5 (high effort)

Related questions

All Engineering Economics chapter 3 questions →