- 2069 Poush
Repeatability, best of A and B
Short answer
Repeatability at 12% MARR: AW(A) = Rs. 57,639/yr, AW(B) = Rs. 79,779/yr. Both positive. Project B has higher annual worth. Select Project B.
Recommend the best project from the following information by using repeatability assumption when MARR is 12%.
| Project | A | B |
|---|---|---|
| Initial investment (Rs.) | 4,00,000 | 7,00,000 |
| Annual revenue (Rs.) | 1,75,000 | 2,50,000 |
| Annual cost (Rs.) | 25,000 | 35,000 |
| Salvage value (Rs.) | 40,000 | 70,000 |
| Useful life (year) | 6 | 8 |
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) = -400,000(0.2432) + (175,000 - 25,000) + 40,000(0.1232) = -97,290 + 150,000 + 4,929 = Rs. 57,639
Project B (N = 8)
(A/P, 12%, 8) = 0.2013, (A/F, 12%, 8) = 0.0813 AW(B) = -700,000(0.2013) + (250,000 - 35,000) + 70,000(0.0813) = -140,912 + 215,000 + 5,691 = Rs. 79,779
| Project | Life | AW (Rs./yr) |
|---|---|---|
| A | 6 | 57,639 |
| B | 8 | 79,779 |
Answer: Select Project B, it has the larger annual worth (Rs. 79,779 against Rs. 57,639), and both are above zero so both meet the MARR.
✓ Answer checked by Claude Opus 5.5 (high effort)
Related questions
- Repeatability assumption, select best of three projects · Engineering Economics, chapter 4 · asked 2×
- AW sensitivity to investment and net annual cash flow · Engineering Economics, chapter 6
- Sensitivity to investment, revenue and life · Engineering Economics, chapter 6
- Best project for 4-year and 8-year service periods · Engineering Economics, chapter 4
- Sensitivity on investment, revenue and life; interpret · Engineering Economics, chapter 6
- Repeatability comparison of projects A and B · Engineering Economics, chapter 4
- EVA; 60 days, 25% work, Rs 12,00,000 · Project Engineering, chapter 4
- EPS and book value; ABC project Rs 6,00,000 · Project Engineering, chapter 6
- EVA application; 35 days, Rs 8,00,000 spent · Project Engineering, chapter 4
- EPS and book value; Rs 10,00,000, 3500 shares · Project Engineering, chapter 6