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The BK Company is considering five proposals for new equipment, as indicated in Table. Each piece of equipment has a life of 100 years.
The BK Company is considering five proposals for new equipment, as indicated in Table. Each piece of equipment has a life of 100 years. Treating that period as infinite, the ROR will be the interest rate at which I is the capitalized equivalent of the perpetual series of payments R; hence, (7.8) gives the third row of Table 9-2. The BK Company has established a MARR of 11% and has a budget of $325 000. Which proposal(s) should the company select? Table 9-2 Proposal Proposal Proposal Proposal Proposal 3 1 2 4 5 Annual Revenue, R $5000 $6000 $25000 $16000 $20000 Investment, I S60 000 SSO 000 $100 000 s100000 $100000 i*= R/I 8% 12% 25% 16% 20% Independent Projects (proposals) selection criteria algorithm 1. Compute i*%ffor eadh project Eliminate the projects whose i*% value s less than MARR (if MARR doesn't exist omit this step) 2. 3. Arrange the surviva projects in descending order of i % value 4. Select projects from the top downward until funds are exhausted. 1.1 If funds are not completely exhausted think about allocating funds in subprojects from the next project on the list if possible 1.2 Use funds left in the "Do nothing alternative" at MARR or at less rate than MARR (for target MARR) 1.3 Have funds as a left over budget
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