For data shown, what is the benefit/cost ratio? BENEFITS Increase p. y. Additional business activity $4,000,000...

For data shown, what is the benefit/cost ratio?

BENEFITS			Increase p. y.
Additional business activity	$4,000,000	per year	4%
Estimated future economic activity	$850,000	per year	5%
Reduction in accidents	$200,000	per year	6%

DIS-BENEFITS
Destruction of vegetable gardens	$340,000	per year	11%
Reduction in business on present road	$185,000	per year	8%

COSTS
Initial cost	$46,000,000	over 15 years
Maintenance cost	$410,000	per year	10%

Interest rate	RATE	7%	p. y. c. y.
Life of project	NPER	15	years

Group of answer choices

1.31

1.06

0.95

0.89

Expert Solution

Particulars	Amount	Increase Per Year
Cost Of Investment	46000000	0%
*Benefits*
Additional Business Activity	4000000	4%
Estimated Future Economic Activity	850000	5%
Reduction in Accidents	200000	6%
*Costs*
Destruction of the vegetable garden	340000	11%
Reduction in business on the present road	185000	8%
Maintenance Costs	410000	10%

Interest Rate		7%
Life of Project		15 years

Year	Cost of investment	Additional Business Activity	Estimated Future Economic Activity	Reduction in Accidents	Destruction of vegetable garden	Reduction in business on present road	Maintenance Costs	Net Cash Flow
0	$ (46,000,000.00)	$ -	$ -	$ -	$ -	$ -	$ -	$ (46,000,000.00)
1	$ -	$ 4,000,000.00	$ 850,000.00	$ 200,000.00	$ 340,000.00	$ 185,000.00	$ 410,000.00	$ 4,115,000.00
2	$ -	$ 4,160,000.00	$ 892,500.00	$ 212,000.00	$ 377,400.00	$ 199,800.00	$ 451,000.00	$ 4,236,300.00
3	$ -	$ 4,326,400.00	$ 937,125.00	$ 224,720.00	$ 418,914.00	$ 215,784.00	$ 496,100.00	$ 4,357,447.00
4	$ -	$ 4,499,456.00	$ 983,981.25	$ 238,203.20	$ 464,994.54	$ 233,046.72	$ 545,710.00	$ 4,477,889.19
5	$ -	$ 4,679,434.24	$ 1,033,180.31	$ 252,495.39	$ 516,143.94	$ 251,690.46	$ 600,281.00	$ 4,596,994.55
6	$ -	$ 4,866,611.61	$ 1,084,839.33	$ 267,645.12	$ 572,919.77	$ 271,825.69	$ 660,309.10	$ 4,714,041.49
7	$ -	$ 5,061,276.07	$ 1,139,081.29	$ 283,703.82	$ 635,940.95	$ 293,571.75	$ 726,340.01	$ 4,828,208.48
8	$ -	$ 5,263,727.12	$ 1,196,035.36	$ 300,726.05	$ 705,894.45	$ 317,057.49	$ 798,974.01	$ 4,938,562.58
9	$ -	$ 5,474,276.20	$ 1,255,837.13	$ 318,769.61	$ 783,542.84	$ 342,422.09	$ 878,871.41	$ 5,044,046.60
10	$ -	$ 5,693,247.25	$ 1,318,628.98	$ 337,895.79	$ 869,732.55	$ 369,815.86	$ 966,758.55	$ 5,143,465.06
11	$ -	$ 5,920,977.14	$ 1,384,560.43	$ 358,169.54	$ 965,403.14	$ 399,401.12	$ 1,063,434.41	$ 5,235,468.44
12	$ -	$ 6,157,816.23	$ 1,453,788.45	$ 379,659.71	$ 1,071,597.48	$ 431,353.21	$ 1,169,777.85	$ 5,318,535.85
13	$ -	$ 6,404,128.87	$ 1,526,477.88	$ 402,439.29	$ 1,189,473.20	$ 465,861.47	$ 1,286,755.63	$ 5,390,955.74
14	$ -	$ 6,660,294.03	$ 1,602,801.77	$ 426,585.65	$ 1,320,315.26	$ 503,130.39	$ 1,415,431.20	$ 5,450,804.61
15	$ -	$ 6,926,705.79	$ 1,682,941.86	$ 452,180.79	$ 1,465,549.93	$ 543,380.82	$ 1,556,974.32	$ 5,495,923.37

NPV = ($2,458,908.76)

Benefit-Cost Ratio = (NPV+Initial Investment)/Initial Investment

=(-2,458,908.76+46,000,000)/46,000,000

=0.95

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