Question

In: Finance

Benefits Additional business and commerce $5,000,000 per year Estimated future economic activity $1,250,000 per year Reduction...

Benefits

Additional business and commerce

$5,000,000

per year

Estimated future economic activity

$1,250,000

per year

Reduction in accidents

$500,000

per year

Dis-benefits

Destruction of vegetable gardens

$500,000

per year

Reduction in business on present road

$250,000

per year

Cost

Initial Cost

$39,000,000

over 30 years

Maintenance Cost

$256,000

per year

Note that Initial Cost is present value. You may convert into annual cost over 30 years at a specific rate.

Based on B/C Ratio analysis, should the city construct the by-pass? The rate that the city uses for its economic analysis is 5%.

Please use excel to solve this question

Solutions

Expert Solution

B/C Ratio = Present Value of Benefits / PV of costs

Disbenefits and costs are the costs.

Hence as the B/C Ratio is more than 1, company should construct the by pass

jeff jeffy answered 1 year ago
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