Question 10.6: Inconsistent Ranking Problem When B−C Ratios Are Inappropria...

Engineering Economy

Inconsistent Ranking Problem When B−C Ratios Are Inappropriately Compared

The required investments, annual operating and maintenance costs, and annual benefits for two mutually exclusive alternative projects are shown subsequently. Both conventional and modified B–C ratios are included for each project. Note that Project A has the greater conventional B–C, but Project B has the greater modified B–C. Given this information, which project should be selected?

	Project A	Project B	MARR = 10% per year
Capital investment	$110,000	$135,000
Annual O&M cost	12,500	45,000
Annual benefit	37,500	80,000
Conventional B–C	1.475	1.314
Modified B–C	1.934	2.206

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