The following three mutually exclusive alternative proposals are being considered for flood proofing a factory building that is located in an area subject to occasional flooding by a nearby river. 1. Do nothing: Damage to the building in a moderate flood is $11,000 and in a severe flood it is $24,000. 2. Protect the building with a one-time initial expenditure of $20,000 so that the building can withstand moderate flooding without any damage and withstand severe flooding with only a $12,000 damage. 3. Protect the building with a one-time initial expenditure of $32,000 so that the building can withstand any flooding with no damage at all. In any year, there is a 20% probability of moderate flooding and a 10% probability of severe flooding. Using a MARR of 12% per year and a service life of 8 years, determine which of the three alternatives is the most economical. (a) Calculate EUAC values for each scenario (use negative numbers for costs) The expected EUAC for the "Do Nothing" alternative is $ 3724 (Round to the nearest whole number.) The expected EUAC for Alternative 2 is $ 3994 (Round to the nearest whole number.)
The following three mutually exclusive alternative proposals are being considered for flood proofing a factory building that is located in an area subject to occasional flooding by a nearby river. 1. Do nothing: Damage to the building in a moderate flood is $11,000 and in a severe flood it is $24,000. 2. Protect the building with a one-time initial expenditure of $20,000 so that the building can withstand moderate flooding without any damage and withstand severe flooding with only a $12,000 damage. 3. Protect the building with a one-time initial expenditure of $32,000 so that the building can withstand any flooding with no damage at all. In any year, there is a 20% probability of moderate flooding and a 10% probability of severe flooding. Using a MARR of 12% per year and a service life of 8 years, determine which of the three alternatives is the most economical. (a) Calculate EUAC values for each scenario (use negative numbers for costs) The expected EUAC for the "Do Nothing" alternative is $ 3724 (Round to the nearest whole number.) The expected EUAC for Alternative 2 is $ 3994 (Round to the nearest whole number.)
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 79DC
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Transcribed Image Text:The following three mutually exclusive alternative proposals are being considered for flood proofing a factory
building that is located in an area subject to occasional flooding by a nearby river.
1. Do nothing: Damage to the building in a moderate flood is $11,000 and in a severe flood it is $24,000.
2. Protect the building with a one-time initial expenditure of $20,000 so that the building can withstand
moderate flooding without any damage and withstand severe flooding with only a $12,000 damage.
3. Protect the building with a one-time initial expenditure of $32,000 so that the building can withstand any
flooding with no damage at all.
In any year, there is a 20% probability of moderate flooding and a 10% probability of severe flooding. Using a
MARR of 12% per year and a service life of 8 years, determine which of the three alternatives is the most
economical.
(a) Calculate EUAC values for each scenario (use negative numbers for costs)
The expected EUAC for the "Do Nothing" alternative is $ 3724 (Round to the nearest whole number.)
The expected EUAC for Alternative 2 is $ 3994 (Round to the nearest whole number.)
The EUAC for Alternative 3 is $13466 (Round to the nearest whole number.)
(b) The most economical alternative is
A. Alternative 3
B. Do nothing
OC. Alternative 2
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