Question

A proposed bridge on the interstate highway system is being considered at the cost of 5 million dollars. It is expected the bridge will have a life of 30 years. Construction costs will be paid by government agencies. Operation and maintenance costs are estimated to be 180,000 per year. Benefits to the public are estimated to be 1,100,000 per year. The building of the bridge will result in an estimated cost of 250,000 per year to the general public. The project requires a return of 10 percent.

Determine the benefit/cost (B/C) ratio.

0.02

1.20

1.55

Answer 1

Ans: 1.20

Explanation:

Annual equivalent cost = 5,000,000(A/P, 10%, 30) + 180,000

                                   = 5,000,000(0.1061) + 180,000

                                     = 530,500 + 180,000
                                     = $710,500

$250,000 cost to the general public is dis-benefit. So,

Annual equivalent benefits = $1,100,000 = $250,000 = $850,000

B/C ratio = Annual equivalent benefits / Annual equivalent cost

               = 850,000 / 710,500

              = 1.20

               =