Question

solve by use this FORMULA :
= Conventional B-C ratio with PW B-C PW(benefits of the proposed project) PW(total costs of the proposed project) PW(B) I - P

((( DRAW A CASH FLOW DIAGRAM )))

10-7. A toll bridge across the Mississippi River is being
considered as a replacement for the current I-40 bridge
linking Tennessee to Arkansas. Because this bridge, if
approved, will become a part of the U.S. Interstate
Highway system, the B–C ratio method must be applied
in the evaluation. Investment costs of the structure are
estimated to be $17,500,000, and $325,000 per year in
operating and maintenance costs are anticipated. In
addition, the bridge must be resurfaced every fifth year
of its 30-year projected life at a cost of $1,250,000 per
occurrence (no resurfacing cost in year 30). Revenues
generated from the toll are anticipated to be $2,500,000
in its first year of operation, with a projected annual
rate of increase of 2.25% per year due to the anticipated
annual increase in traffic across the bridge. Assuming
zero market (salvage) value for the bridge at the end of
30 years and a MARR of 10% per year, should the toll
bridge be constructed?

Answer 1

Looking at the excel computation, We form cashflows of cost and benefits,

1. We take the net cash flow = Benefits - cost

2. Sum the net cash flow for all the years

3. Compute the PV of all the net cashflows

4. Sum the PV of all years

And finally take out the benefit to cost ratio by dividing Total PV by Total net cashflow.

Thus, B/C ratio = 0.0865