Question

The Adams Construction Company is bidding on a project to install alarge flood drainage culvert from Dandridge to a distantlake. The cost and benefits

are shown below. Use the Present Worth conventional and modified Benefit-Cost ration method to make a recommendation.Draw Cash Flow Diagram

Initial investment = $2 million

Right of way maintenance cost = $30,000 per year

Major upkeep every six years = $50,000

Annual benefits to the taxpayers = $135,000 per year

Life of the project = 12 years

MARR = 6%

Answer 1

Present worth = -1,179,792.88 so do not accept it (refer table below for calculations)

Discount rate	6.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
(2,000,000.000)	0	(2,000,000.00)	(2,000,000.00)
105,000.000	1	99,056.60	(1,900,943.40)
105,000.000	2	93,449.63	(1,807,493.770)
105,000.000	3	88,160.02	(1,719,333.745)
105,000.000	4	83,169.83	(1,636,163.911)
105,000.000	5	78,462.11	(1,557,701.80)
55,000.000	6	38,772.83	(1,518,928.973)
105,000.000	7	69,831.00	(1,449,097.98)
105,000.000	8	65,878.30	(1,383,219.68)
105,000.000	9	62,149.34	(1,321,070.34)
105,000.000	10	58,631.45	(1,262,438.89)
105,000.000	11	55,312.69	(1,207,126.20)
55,000.000	12	27,333.31	(1,179,792.88)