A city is trying to decide which of two traffic devices to install. Device A costs $1000 and has useful life of five years.  Device A can be expected to result in $300 savings annually. Device B costs $2000 and has useful life of eight years.  Device B can be expected to result in $400 savings annually.Both devices have no salvage value at the end of their lives.With interest at 7%, the benefit cost ratio of the most cost effective device is most nearly:

Solution:  

Device A:

  PW of cost   = $1000

  PW of benefits = $300 (P/A, 7%, 5) = $1230    

B/C =   1230/1000   = 1.23

Device B:

  PW of cost   = $2000

  PW of benefits = $400 (P/A, 7%, 8) = $2388    

B/C =   2388/2000   = 1.19

In order to maximize the benefit-cost ratio, select Device A; 1.23