Part 2: (30 Marks)
08: DEWA has two renewal energy alternatives are available for providing energy at a remote government
research facility. The cash flow estimates associated with each alternative are given below. Use the
conventional B-C ratio method, with Annual Worth as the equivalent-worth measure, to determine which
alternative should be selected at an interest rate of 10% per year over a 25-year study period. One alternative
must be selected.
Alternative I
Alternative II
(15 marks)
Initial cost, $
$1,000,000
$990,000
Annual maintenance costs, $/yr
$380,000
$359,500
Annual benefits, $/yr
$500,000
$459,500
Salvage value, $
$17,000
$15,800
B = 1000 000 (A/P 10%, 25) - 380000 + 500000
1000 000 (0.1102) - 380 000 + 500 000
= 990200
12000 (A/F 10%, 25)
B/C = \frac{-b \pm \sqrt{b^2 - 4ac}}{2c}
99
