Question

10) Make a benefit/cost analysis by evaluating B/C for the following:

a) a project with initial cost = $7,254 , annual cost= $868, annual benefits= $ 1,867, disbenefits having a present worth PW value of $1,613, interest rate= 9% and life = 5 years

b) a project with initial cost = $2,126 , annual cost= $1,806, annual benefits= $ 1,434, annual disbenefits= $408, interest rate= 3% and life = 9 years.

c) a project with total annual cost= $7,744, annual benefits= $ 9,376, annual disbenefits= $614.

d)for a project with a total PW of cost of $6,439, annual benefits of $ 1,444, annual disbenefits of $482,interest rate of 7% and life of 7 years

Answer 1

Solution:

a).

Particulars/Year	1	2	3	4	5	Total
Annual Cost (B)	868	868	868	868	868	4,340
Annual Benefit (C)	1,867	1,867	1,867	1,867	1,867	9,335
PVF @ 9%	0.92	0.84	0.77	0.71	0.65
PV of Annual Cost	796	731	670	615	564	3,376
PV of Annual Benefits	1,713	1,571	1,442	1,323	1,213	7,262
Total Cost = Initial Cost + PV of annual cost
= 7,254 + 3,376 = 10,630
Total Benefits = PV of Annual Benefits - Disbenefits
= 7,262 - 1,613 = 5,649
Benefit/Cost Ratio = 5,649/10,630
= 0.53

b).

Particulars/Year	1	2	3	4	5	6	7	8	9	Total
Annual Cost (B)	1,806	1,806	1,806	1,806	1,806	1,806	1,806	1,806	1,806	16,254
Annual Benefit (C)	1,434	1,434	1,434	1,434	1,434	1,434	1,434	1,434	1,434	12,906
Annual Disbenefits	408	408	408	408	408	408	408	408	408	3,672
PVF @ 3%	0.97	0.94	0.92	0.89	0.86	0.84	0.81	0.79	0.77
PV of Annual Cost	1,753	1,702	1,653	1,605	1,558	1,512	1,468	1,426	1,384	14,062
PV of Annual Benefits	1,392	1,352	1,312	1,274	1,237	1,201	1,166	1,132	1,099	11,165
PV of Annual Disbenefits	409	409	409	409	409	409	409	409	409	3,680
Total Cost = Initial Cost + PV of annual cost
= 2,126 + 14,062 = 16,188
Total Benefits = PV of Annual Benefits - PV of Disbenefits
= 11,165 - 3,680 = 7,485
Benefit/Cost Ratio = 7,485/16,188
= 0.46

c).

Assuming life is 1 year

Total Cost = 7,744

Total Benefits = Annual Benefits - Disbenefits

= 9,376 - 614 = 8,762

Benefit/Cost Ratio = 8,762/7,744

= 1.13

d).

Particulars/Year	1	2	3	4	5	6	7	Total
Annual Benefit (C)	1,444	1,444	1,444	1,444	1,444	1,444	1,444	10,108
Annual Disbenefits	482	482	482	482	482	482	482	3,374
PVF @ 7%	0.93	0.87	0.82	0.76	0.71	0.67	0.62
PV of Annual Benefits	1,350	1,261	1,179	1,102	1,030	962	899	7,782
PV of Annual Disbenefits	483	483	ekkarill92 Next > < Previous Related Solutions A cost benefit analysis of a new CD fence project indicates that the net benefits (B-C)... A cost benefit analysis of a new CD fence project indicates that the net benefits (B-C) of the project in each of the first three (3) years will be $-2,000,000 (-2 million dollars). Thereafter, the project will yield positive net benefits of $750,000 for the next 23yrs. Alternatively, an education project will yield net benefits of $-1,000,000 (-1 million dollars) for the first year, and positive net benefits of $6,000,000 for the next 10yrs, and $10,000,000 for another 15yrs. A)... A cost benefit analysis of a new CD fence project indicates that the net benefits (B-C)... A cost benefit analysis of a new CD fence project indicates that the net benefits (B-C) of the project in each of the first three (3) years will be $-2,000,000 (-2 million dollars). Thereafter, the project will yield positive net benefits of $750,000 for the next 23yrs. Alternatively, an education project will yield net benefits of $-1,000,000 (-1 million dollars) for the first year, and positive net benefits of $6,000,000 for the next 10yrs, and $10,000,000 for another 15yrs. Calculate... You are evaluating the following project. All $ are in millions Initial cost of the project... You are evaluating the following project. All $ are in millions Initial cost of the project at t=0 is $70. Annual cash flows from the project depends on the demand for the product and is estimated to be as follows: With probability of 30%, the demand is high and the annual cash flow is $45 With probability of 40%, the demand is average and the annual cash flow is $30 With probability of 30%, the demand is low and the... You are evaluating the following project. All $ are in millions Initial cost of the project... You are evaluating the following project. All $ are in millions Initial cost of the project at t=0 is $70. Annual cash flows from the project depends on the demand for the product and is estimated to be as follows: With probability of 30%, the demand is high and the annual cash flow is $45 With probability of 40%, the demand is average and the annual cash flow is $30 With probability of 30%, the demand is low and the... explain project cost-benefit analysis? explain project cost-benefit analysis? Dell is evaluating a project which has the initial cost of $10,000 and generates the following... Dell is evaluating a project which has the initial cost of $10,000 and generates the following cash flow/ Year 1 2 3 4 5 Cash Flow 5,000 3,000 4,000 8,000 10,000 The firm's cost of capital is 10%. Calculate NPV, PI, IRR, MIRR, discounted payback, and payback period Given the following free cash​ flows,    PROJECT A   PROJECT B   PROJECT C Initial outlay   -70,000  ... Given the following free cash​ flows,    PROJECT A   PROJECT B   PROJECT C Initial outlay   -70,000   -140,000   -450,000 Cash inflows:           Year 1 12,000   120,000   220,000 Year 2 18,000   30,000   220,000 Year 3 22,000   30,000   220,000 Year 4 28,000   30,000 -------- Year 5 32,000   30,000 --------- What is the IRR of project​ A? What is the IRR of project​ B? What is the IRR of project​ C? determine the IRR for the three independent projects​ A, B, and C There are two ways for finding the benefit to cost ratio (B/C Ratio) B/C Ratio =... There are two ways for finding the benefit to cost ratio (B/C Ratio) B/C Ratio = [ Annual Benefits-Annual Disbenefits] / [Annual Cost of Implementing Project] B/C Ratio = [NPV of Benefits-NPV of Disbenefits] / [NPV of Implementing Project] If the B/C Ratio is greater than one, we can infer that the project is worth undertaking. Note that there can only be one B/C ratio for a project (unlike IRR which can at times have multiple values) Problem: The City... Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial investment for... Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial investment for each project is $40,000. Project A will generate cash inflows equal to $15,625 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $79,500 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Inc. is 10... Sensitivity Analysis Consider the project where the initial cost is $200,000, and the project has a... Sensitivity Analysis Consider the project where the initial cost is $200,000, and the project has a 5-year life. There is no salvage. Depreciation is straight-line (Depreciation = 200,000/5 = 40,000) Unit Sales = 6000, Price per unit = $80 (Sales = 6,000 x 80) Variable cost per unit = $60 (Variable Costs = 6,000 x 60) The required return is 12%, and the tax rate is 21%  What are the cash flow each year, NPV and IRR in each... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions Is it ethical for tobacco companies to sell a product that is known to be addictive... use LogiSim to implement Half Adder (HA) and Full Adder (FA) using Logic Gates. You will... You are looking to finance your home. The bank is offering a three-year ARM (adjustable-rate mortgage)... 1. How companies account for defined benefit, defined contribution, and postretirement benefit plans? A system may follow various paths while going from one state to another. Depending on the... Question 1 Norway (Pty) Ltd is a divisionalised company, where the divisional managers’ remuneration packages are... You have an opportunity to invest $103,000 now in return for $80,200 in one year and... ADVERTISEMENT About @ 2020 WizEdu