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
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