Question

In: Finance

Recent development near Eugene, Oregon, has identified a need for improved access to Interstate 5 at...

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: $

Solutions

Expert Solution

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

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