ENGINEERING ECONOMIC

The government is planning a multi-purpose hydroelectric project for a river basin. The estimated benefits and costs that are expected to be derived from the three alternatives under consideration are shown in Table Q4(a). The interest rate is 7.81% and the life span of each project is 37 years. (a) Table Q4(a): Estimated benefits and costs for a multi-purpose hydroelectric project C Initial Cost RM55,000,000 Annual benefits and costs RM35,000,000 RM1,900,000 RM230,000 RM8,100,000 RM525,100 RM222,000 RM45,000,000 RM1,550,000 RM305,000 RM550,000 RM150,100 RM232,000 RM2,100,000 RM505,000 Power sales Flood control saving Irrigation benefits RM700,000 RM350,100 Recreation benefits RM352000 Operation and maintenance costs Evaluate each project using the benefit - cost analysis. (i) (9 marks) Choose project according to benefit - cost analysis evaluation (2 marks) Rank project in the order of best to worst (iii) (3 marks) (iv) Assume each project involved intangible benefits that required considerable judgment in assigning their values. Recommend which project should be chosen. (2 marks) A firm is trying to decide which of two devices to install to reduce costs in a particular situation. Both devices cost RM1000 and have useful lives of 5 years and salvage value. Device A can be expected to result in RM300 savings annually Device B wil provide cost savings of RM400 the first year, but savings will decline by RM50 annually, making the second-year savings RM350, the third-year savings RM300, and so forth. Assume the interest rate is 7% (b) no Evaluate each device proposal and recommend the device that should be chosen (5 marks) Explain your recommendation in Q4(b)(i) (ii) (4 marks)