Question

Recent development near Eugene, Oregon, has identified a need for improved access to Interstate 5 at one location. Civil engineers and public planners are considering three alternative access plans. Benefits are estimated for the public in general; disbenefits primarily affect some local proprietors who will see traffic pattern changes as undesirable. Costs are monetary for construction and upkeep, and savings are a reduction in cost of those operations today that will not be necessary in the future. All figures are relative to the present situation, retention of which is still an alternative, and are annualized over the 20-year planning horizon.

Alternative	A	B	C
Benefits	$240,000	$370,000	$470,000
Disbenefits	$37,000	$69,000	$102,000
Costs	$155,000	$244,000	$327,000
Savings	$15,000	$31,000	$42,000

A)What is the B/C ratio for each of these alternatives?

Alternative A:
Alternative B:
Alternative C:

B) Using incremental B/C ratio analysis, which alternative should be selected?

a and b, or b and c, or a and c, or all , or a, or b, or c?

Please show the ratios used to make your decision:

Comparison 1:      C-DN, or A-DN, or B-DN Ratio:
Comparison 2: C-B, or, A-C or,  DN-C or, B-A or, DN-B, or DN-A Ratio:
Comparison 3: C-B or DN-C or A-DN or A-B or C-DN Ratio:

C)Determine the value of B – C for each alternative.

Alternative A: $
Alternative B: $
Alternative C: $

Answer 1

In capital budgeting and project apprisal Benefit to cost ratio help in taking decision among choosing the better alter native.

Benifits: Benifits includes, Revenue, Sales, cost saving, any opportunity profit etc

Cost : Cost includes all dis benefits, direct cost, indirect cost and also opportunity cost.

Steps in solving the Benifit Cost ratio.

Step1 ; Arrange data in the for given below

Step 2: Total benefits = Saving + Benifits

step 3: Totals cost = Disbenifits + Cost

Step 4: Total Benifits / Total Cost = B/C ratio

Incremental B / C ratio calculated by substracting the low value from high value.

There for we have substracted Project B - A and Project C - B and C - A

		B/ C Ratio
	Alternative	A	B	C
	Benefits	240000	370000	470000
	Savings	15000	31000	42000
	Total Benefit	255000	401000	512000
	Disbenefits	37000	69000	102000
	Costs	155000	244000	327000
	Total Cost	192000	313000	429000
	B/C Ratio	1.33	1.28	1.19
	B - C	63000	88000	83000
	Question 1	Alternative	B/C Ratio
		A	1.33
		B	1.28
		C	1.19
	Question 2	Incremental B/C Ratio
		B vs A	C vs B	C vs A
		130000	100000	230000
		16000	11000	27000
		146000	111000	257000
		32000	33000	65000
		89000	83000	172000
		121000	116000	237000
		1.21	0.96	1.08
		Option - B is better because Project B offer $1.21	more than Projcet A
	Question 3	Alternative	B - C
		A	63000
		B	88000
		C	83000