A road resurfacing project costs $200,000, lasts 5 years and saves $100,000 annually in patching costs....

A road resurfacing project costs $200,000, lasts 5 years and saves $100,000 annually in patching costs. MARR is 10%. Determine the BCR (round off to 3 decimal places) of the project.

Expert Solution

A benefit-cost ratio (BCR) is a ratio used in a cost-benefit analysis to summarize the overall relationship between the relative costs and benefits of a proposed project. BCR can be expressed in monetary or qualitative terms. If a project has a BCR greater than 1.0, the project is expected to deliver a positive net present value to a firm and its investors.

Initial Cost = $200,000

Life = 5 years

Annual Savings = $100000

MARR = 10%

Using Present Worth Method

B/C Ratio = PW of Benefits ÷ PW of Cost

B/C Ratio = $10000 (P/A, 10%, 5) ÷ $200,000

B/C Ratio = $150,000 (3.7908) ÷ $200,000

B/C Ratio = $568620 ÷ $200,000

B/C Ratio = 2.843

The benefit cost ratio is 2.843 B.C Ratio is greater than 1, so select the project as the project is expected to deliver a positive net present value (NPV) and will have an internal rate of return (IRR) above the discount rate used in the DCF calculations.

Rahul Sunny answered 1 year ago

A road resurfacing project costs $250,000, lasts 5 years and saves $150,000 annually in patching costs....

A road resurfacing project costs $250,000, lasts 5 years and saves $150,000 annually in patching costs. MARR is 12%. Determine the future worth (in $).

Machinery costs $1 million today and $100,000 per year to operate. It lasts for 5 years....

Machinery costs $1 million today and $100,000 per year to operate. It lasts for 5 years. What is the equivalent annual annuity if the discount rate is 5%? Enter your answer in dollars and round to the cent. Remember that costs are negative cash flows; so, include the negative sign.

What is the NPV of a project that costs $100,000, provides $21,000 in cash flows annually...

What is the NPV of a project that costs $100,000, provides $21,000 in cash flows annually for six years, requires a $5,000 increase in net working capital which will be recovered later? The discount rate is 14%. -$13,283 -$21,060 - $18,142 $15,561

TPG Inc. is evaluating an investment project that lasts for four years. The project has the...

TPG Inc. is evaluating an investment project that lasts for four years. The project has the cost of capital of 10% and requires an initial investment of $4 million today. The size of the annual cash flows will depend on future market conditions. There is a 40% probability that the market conditions will be good, in which case the project will generate free cash flows of $3 million per year during the next four years. There is also a 60%...

Tank Co. is evaluating a project that costs $100,000 and has a 5-year life. Assume that...

Tank Co. is evaluating a project that costs $100,000 and has a 5-year life. Assume that depreciation is prime-cost to zero salvage value over the 5-years, and the equipment can be sold for $6,000 at the end of year 5. The average discount rate for such a project is 10 per cent on such projects. The individual tax rate is 15 per cent and the corporate tax rate is 30 per cent. It is projected that they will sell 12000...

QUESTION 17 TPG Inc. is evaluating an investment project that lasts for four years. The project...

QUESTION 17 TPG Inc. is evaluating an investment project that lasts for four years. The project has the cost of capital of 15% and requires an initial investment of $5 million today. The size of the annual cash flows will depend on future market conditions. There is a 30% probability that the market conditions will be good, in which case the project will generate free cash flows of $4 million per year during the next four years. There is also...

QUESTION 10 ABC Inc. is evaluating an investment project that lasts for three years. The project...

QUESTION 10 ABC Inc. is evaluating an investment project that lasts for three years. The project has the cost of capital of 10% and requires an initial investment of $3 million. There is a 60% chance that the project would be successful and would generate annual free cash flows of $2 million per year during the next three years. There is a 40% chance that the project would be less successful and would generate only $1 million per year during...

A 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $40,000 cash...

A 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $40,000 cash and borrow $60,000 at 7% with an interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the project. There will be a pre-tax salvage value of $10,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 50,000 units of...

A firm is considering a new project that costs $10,000 that will last 5 years and...

A firm is considering a new project that costs $10,000 that will last 5 years and will have no salvage value. The project would save $3,000 per year in salaries and would be financed with a loan that will accrue interest costs of 15% per year. The firm’s tax rate is 40%, its cost of capital is 20%, and the firm will use the straight-line method of depreciation. What is the NPV of the project? Should the firm invest in...

What is the ATCF rate of return for machine that costs 300,000, lasts for 8 years,...

What is the ATCF rate of return for machine that costs 300,000, lasts for 8 years, has zero salvage value, and is classified as 5 year MACRS property? The machine will be purchased with a 20.0% down payment and a four year loan for the remaining amount at an annual interest rate of 11.50%. The machine produces net revenues after deducting direct and indirect expenses but not depreciation of 46,000 in year 1, 120,000 in years 2 to 6, 60,000...

Question