- 2070 Magh · 4 marks
Repeatability comparison of projects A and B
Short answer
Repeatability at 12% MARR: AW(A) = -Rs. 29,413/yr, AW(B) = -Rs. 37,765/yr. Both negative (neither meets MARR). Project A has less negative AW; select A if forced to choose.
Compare the following projects by using repeatability assumption when MARR is 12%.
| Project | A | B |
|---|---|---|
| Initial investment | 2,00,000 | 3,00,000 |
| Annual revenue | 25,000 | 30,000 |
| Annual costs | 7,000 | 9,000 |
| Useful life, year | 6 | 8 |
| Salvage value | 10,000 | 20,000 |
Repeatability assumption: each project can be repeated indefinitely with the same cash flows, so the comparison is made on annual worth (AW) of one life cycle. MARR = 12%.
AW = -I(A/P, 12%, N) + (Revenue - Cost) + S(A/F, 12%, N)
Project A (N = 6)
(A/P, 12%, 6) = 0.2432, (A/F, 12%, 6) = 0.1232 AW(A) = -200,000(0.2432) + (25,000 - 7,000) + 10,000(0.1232) = -48,645 + 18,000 + 1,232 = Rs. -29,413
Project B (N = 8)
(A/P, 12%, 8) = 0.2013, (A/F, 12%, 8) = 0.0813 AW(B) = -300,000(0.2013) + (30,000 - 9,000) + 20,000(0.0813) = -60,391 + 21,000 + 1,626 = Rs. -37,765
| Project | Life | AW (Rs./yr) |
|---|---|---|
| A | 6 | -29,413 |
| B | 8 | -37,765 |
Answer: Select Project A, it has the larger (less negative) annual worth (-29,413 against -37,765). Both AWs are negative, so neither earns the MARR of 12%; if doing nothing is allowed, neither should be taken.
✓ Answer checked by Claude Opus 5.5 (high effort)
Related questions
- Sensitivity to investment, revenue and life · Engineering Economics, chapter 6
- Repeatability assumption, select best of three projects · Engineering Economics, chapter 4 · asked 2×
- Sensitivity on investment, revenue and life; interpret · Engineering Economics, chapter 6
- Repeatability, 4-year study, infinite life · Engineering Economics, chapter 4
- Best of three mutually exclusive projects, 10-year study · Engineering Economics, chapter 4
- PW sensitivity to investment, income, life by ±25% · Engineering Economics, chapter 6
- EPS and book value; ABC project Rs 6,00,000 · Project Engineering, chapter 6
- EVA; 60 days, 25% work, Rs 12,00,000 · Project Engineering, chapter 4
- EPS and book value; Rs 10,00,000, 3500 shares · Project Engineering, chapter 6
- Feasibility using two methods, MARR 15% · Project Engineering, chapter 6