Question

1. What is the traditional benefit cost ratio applying an interest rate of 5.0% that requires an upfront investment of 120,000 of the public project below? 1 2 3 4 5 6 7 8 Benefits 35,000 51,000 51,000 51,000 51,000 51,000 46,000 41,000 Revenues 4,000 6,000 6,000 6,000 6,000 6,000 6,000 3,000 Operating Cost 13,000 16,000 16,000 16,000 16,000 17,000 19,000 18,000

2. What is the net benefit cost ratio of the project above

Answer 1

1. Traditional Benefit Cost Analysis formula is

B/C = Total Benefits / I+Costs , I is Investment which is 120000 , same for all projects

	1	2	3	4	5	6	7	8
Benefits	35,000	51,000	51,000	51,000	51,000	51,000	46,000	41,000
Revenues	4,000	6,000	6,000	6,000	6,000	6,000	6,000	3,000
Total Benefit = Benefits + Revenue	39000	57000	57000	57000	57000	57000	52000	44000
Operating Cost	13,000	16,000	16,000	16,000	16,000	17,000	19,000	18,000
B/C	0.2932	0.4191	0.4191	0.4191	0.4191	0.4160	0.3741	0.3188

2. Net Benefit Cost Analysis Formula is

Net Benefit Cost Ratio = (Total Benefit - Cost )/ Investment = Net Benefit / Investment

	1	2	3	4	5	6	7	8
Benefits	35,000	51,000	51,000	51,000	51,000	51,000	46,000	41,000
Revenues	4,000	6,000	6,000	6,000	6,000	6,000	6,000	3,000
Total Benefit = Benefits + Revenue	39000	57000	57000	57000	57000	57000	52000	44000
Operating Cost	13,000	16,000	16,000	16,000	16,000	17,000	19,000	18,000
Net Benefit	26000	41000	41000	41000	41000	40000	33000	26000
B/C	0.216	0.341	0.341	0.341	0.341	0.333	0.275	0.216