The cost of grading and spreading gravel on a short rural road is expected to be...

The cost of grading and spreading gravel on a short rural road is expected to be $300,000. The road will have to be maintained at a cost of $25,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off-road vehicles. The improved accessibility has led to a 150% increase in the property values along the road. If the previous market value of a property was $900,000, calculate the B/C ratio using an interest rate of 6% per year and a 20-year study period.

Expert Solution

Soln :

B/C ratio = Present value of benefits / Initial Investment

Initial investment = $ 300,000

The benefits per year due to improved accessibility = $ 900,000

Costs per year for maintenance = $ 25,000

BCR ratio = ($10,322,929.10 / $ 300,000) - 1

BCR ratio = 33.40

The project is feasible .

Rahul Sunny answered 2 years ago

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