Question

In: Finance

The Adams Construction Company is bidding on a project to install alarge flood drainage culvert from...

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%

Solutions

Expert Solution

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)

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