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Two design alternatives A and B have the following cash flows. Each alternative has 20-year life at a 8% interest rate.
Two design alternatives A and B have the following cash flows. Each alternative has 20-year life at a 8% interest rate.
Alternative A Alternative B
Initial Cost $700,000 $950,000
Annual Benefits $80,000 $120,000
Annual Operating Cost $20,000 $30,000
Using incremental B/C ratio to select the best alternative. Which of the following statements is TRUE?
A.Incremental B/C ratio is 0.89 and Alternative A should be selected.
B.Incremental B/C ratio is 0.89 and Alternative B should be selected.
C.Incremental B/C ratio is 1.13 and Alternative B should be selected.
D.Incremental B/C ratio is 1.13 and Alternative A should be selected.
