Question

The State Highway Department is considering a bypass loop that is expected to save motorists $820,000 per year in gasoline and other automobile-related expenses. However, local businesses will experience revenue losses estimated to be $135,000 each year. The cost of the loop will be $9,000,000. (a) Calculate the conventional B/C ratio using an interest rate of 6% per year and a 20-year project period. (b) Calculate the conventional B/C ratio without considering the disbenefits. Is the project economically justified with and without consider­ing the revenue losses? (c) Develop the single-cell spreadsheet functions that will answer the two questions above.

Answer 1

Answer (a):

Conventional B/C Ratio = (PV of net benefits/total cost) *100

PV of net benefits= (8,20,000- 1,35,000)*PVAF(6%,20)

equals 6,85,000* 8.38384 = 57,42,930.40

therefore, conventional B/C ratio = 57,42,930.40/90,00,000 = 0.6381 which is less than 1 and hence, NOT FAVOURABLE.

Answer (b):

Conventional B/C ratio without considering the disbenefits = {(8,20,000*PVAF(6%,20)₹} /90,00,000 equals 68,74,748/ 90,00,000 = 0.76386 which is less than 1and hence, NOT FAVOURABLE.

Answer (c):

There is no way of uploading an excel spreadsheet on Chegg abd so, the questions given are solved in the simplest way possible.

please rate my answer well.

Thanks a lot in advance.