Question
In: Civil Engineering
A highway construction company is under contract to build a new roadway through a scenic area...
A highway construction company is under contract to build a new roadway through a scenic area and two rural towns in Colorado. The road is expected to cost $18,000,000, with annual upkeep estimated at $150,000 per year. Additional income from tourist (Benefits) of $900,000 per year is estimated. The road is expected to have a useful commercial life of 20 years. Determine if the highway should be constructed at a discount rate of 6% per year, applying the Conventional B/C method . Remember to state your decision (Build or don’t build).
Solutions
Expert Solution
ANS:
We know Benefit cost ratio = B/C = Benefits/cost
If B/C > 1.0 then the project is advantageous.
Here,
| HIGHWAY PROJECT: | ||||||||
| SL.NO. | PROJECT | COSTS | DISCOUNT | TOTAL COST-1s.yr | BENEFITS (SAVINGS) | |||
| INVESTMENT | O&M/YR | 6% | P.YR. | |||||
| 1 |
State highway Project |
$ 18,000,000 | $ 150,000 | $ 1,089,000 | $ 19,239,000 | $ 900,000 | ||
| YEARS | |||||||||||||||||||||
| CASHFLOW | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | |
| HIGH WAY PROJECT | INFLOW | $ 900,000 | $ 954,000 | $ 1,011,240 | $ 1,071,914 | $ 1,136,229 | $ 1,204,403 | $ 1,276,667 | $ 1,353,267 | $ 1,434,463 | $ 1,520,531 | $ 1,611,763 | $ 1,708,469 | $ 1,810,977 | $ 1,919,635 | $ 2,034,814 | $ 2,156,902 | $ 2,286,317 | $ 2,423,496 | $ 2,568,905 | $ 2,723,040 |
| CUMULATIVE INFLOW | $ 900,000 | $ 1,854,000 | $ 2,865,240 | $ 3,937,154 | $ 5,073,384 | $ 6,277,787 | $ 7,554,454 | $ 8,907,721 | $ 10,342,184 | $ 11,862,715 | $ 13,474,478 | $ 15,182,947 | $ 16,993,924 | $ 18,913,559 | $ 20,948,373 | $ 23,105,275 | $ 25,391,592 | $ 27,815,087 | $ 30,383,993 | $ 33,107,032 | |
| OUTFLOW | $ 19,239,000 | $ 1,304,340 | $ 1,382,600 | $ 1,465,556 | $ 1,553,490 | $ 1,646,699 | $ 1,745,501 | $ 1,850,231 | $ 1,961,245 | $ 2,078,920 | $ 2,203,655 | $ 2,335,874 | $ 2,476,027 | $ 2,624,588 | $ 2,782,064 | $ 2,948,987 | $ 3,125,927 | $ 3,313,482 | $ 3,512,291 | $ 3,723,029 | |
| CUMULATIVE OUTFLOW | $ 19,239,000 | $ 20,543,340 | $ 21,925,940 | $ 23,391,497 | $ 24,944,987 | $ 26,591,686 | $ 28,337,187 | $ 30,187,418 | $ 32,148,663 | $ 34,227,583 | $ 36,431,238 | $ 38,767,112 | $ 41,243,139 | $ 43,867,727 | $ 46,649,791 | $ 49,598,779 | $ 52,724,705 | $ 56,038,188 | $ 59,550,479 | $ 63,273,508 | |
| NET CASHFLOW | $ (18,339,000) | $ (18,689,340) | $ (19,060,700) | $ (19,454,342) | $ (19,871,603) | $ (20,313,899) | $ (20,782,733) | $ (21,279,697) | $ (21,806,479) | $ (22,364,868) | $ (22,956,760) | $ (23,584,165) | $ (24,249,215) | $ (24,954,168) | $ (25,701,418) | $ (26,493,503) | $ (27,333,113) | $ (28,223,100) | $ (29,166,486) | $ (30,166,475) | |
| BCR = | 0.5232 | ||||||||||||||||||||
If B/C = 0.523 WHICH IS < 1.0, so this project will be disadvantageous.
Ally Wells answered 2 years agoRelated Solutions
A highway construction company is under contract to build a new roadway through a scenic area...
A highway construction company is under contract to build a new
roadway through a scenic area and two rural towns in Colorado. The
road is expected to cost $18,000,000, with annual upkeep estimated
at $150,000 per year. Additional income from tourist (Benefits) of
$900,000 per year is estimated. The road is expected to have a
useful commercial life of 20 years. Determine if the highway should
be constructed at a discount rate of 6% per year, applying the
Conventional B/C...
PART B (8 marks) Quality Construction Company (QCC) successfully secured the contract to build a new...
PART B
Quality Construction Company (QCC) successfully secured the
contract to build a new community centre for the City of Burnaby.
The total fixed contract price is $25.0 million.
The following schedule indicates (for the three-year period
during which construction took place) the costs incurred to date,
the estimated costs to complete the community centre complex, and
the amount of cash received scheduled to be received from the City
of Burnaby. According to normal practice in the industry, the final...
Stoney Run Construction Company (U.S. GAAP) enters into a 3-year contract to build a new warehouse...
Stoney Run Construction Company (U.S. GAAP) enters into a 3-year
contract to build a new warehouse facility. Information for Years
1, 2, and 3 is shown below:
Year 1
Year 2
Year 3
Sale price
$2,800,000
$2,800,000
$2,800,000
Estimated
costs
1,600,000
2,000,000
2,000,000
Costs incurred to
date (paid in cash)
400,000
900,000
2,000,000
Billed to
date
250,000
1,150,000
2,800,000
Received in cash
to date
190,000
950,000
2,800,000
COST RECOVERY METHOD (IFRS)
Question 1: Calculate the Gross Profit booked in Year...
Stoney Run Construction Company (U.S. GAAP) enters into a 3-year contract to build a new warehouse...
Stoney Run Construction Company (U.S. GAAP) enters into a 3-year
contract to build a new warehouse facility. Information for Years
1, 2, and 3 is shown below:
Year 1
Year 2
Year 3
Sale price
$2,800,000
$2,800,000
$2,800,000
Estimated costs
1,600,000
2,000,000
2,000,000
Costs incurred to date (paid in cash)
400,000
900,000
2,000,000
Billed to date
250,000
1,150,000
2,800,000
Received in cash to date
190,000
950,000
2,800,000
Question 4:
Calculate the gross profit booked in Year 2:
Question 5:
Book...
At the beginning of 2017, the Mini Construction Company received a contract to build an office...
At the beginning of 2017, the Mini Construction Company received
a contract to build an office building for $1.2 million. Mini will
construct the building according to specifications provided by the
buyer, and the project is estimated to take four years to complete.
The cost breakdown is as follows. Determine the amount of revenue
and gross profit to be recognized each year. (do not include $ in
your answer, round to 4 decimal places).
2017
2018
2019
2020
cost incurred...
At the beginning of 2013, the Harding Construction Company received a contract to build an office...
At the beginning of 2013, the Harding Construction Company
received a contract to build an office building for $10 million.
Harding will construct the building according to specifications
provided by the buyer, and the project is estimated to take three
years to complete. According to the contract, Harding will bill the
buyer in installments over the construction period according to a
prearranged schedule. Information related to the contract is as
follows:
2013
2014
2015
Cost incurred during the year
$2,300,000...
On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a...
On February 1, 2021, Arrow Construction Company entered into a
three-year construction contract to build a bridge for a price of
$8,000,000. During 2021, costs of $2,000,000 were incurred, with
estimated costs of $4,000,000 yet to be incurred. Billings of
$2,500,000 were sent, and cash collected was $2,250,000.
In 2022, costs incurred were $2,500,000 with remaining costs
estimated to be $3,600,000. 2022 billings were $2,750,000, and
$2,475,000 cash was collected. The project was completed in 2023
after additional costs of...
On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a...
On February 1, 2018, Arrow Construction Company entered into a
three-year construction contract to build a bridge for a price of
$8,500,000. During 2018, costs of $2,200,000 were incurred, with
estimated costs of $4,200,000 yet to be incurred. Billings of
$2,740,000 were sent, and cash collected was $2,450,000.
In 2019, costs incurred were $2,740,000 with remaining costs
estimated to be $3,900,000. 2019 billings were $2,990,000, and
$2,675,000 cash was collected. The project was completed in 2020
after additional costs of...
On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a...
On February 1, 2021, Arrow Construction Company entered into a
three-year construction contract to build a bridge for a price of
$8,050,000. During 2021, costs of $2,020,000 were incurred, with
estimated costs of $4,020,000 yet to be incurred. Billings of
$2,524,000 were sent, and cash collected was $2,270,000.
In 2022, costs incurred were $2,524,000 with remaining costs
estimated to be $3,630,000. 2022 billings were $2,774,000, and
$2,495,000 cash was collected. The project was completed in 2023
after additional costs of...
On February 1, 2018, Arrow Construction Company entered into a three-year construction contract to build a...
On February 1, 2018, Arrow Construction Company entered into a
three-year construction contract to build a bridge for a price of
$8,150,000. During 2018, costs of $2,050,000 were incurred with
estimated costs of $4,050,000 yet to be incurred. Billings of
$2,550,000 were sent, and cash collected was $2,300,000.
In 2019, costs incurred were $2,550,000 with remaining costs
estimated to be $3,675,000. 2019 billings were $2,800,000 and
$2,525,000 cash was collected. The project was completed in 2020
after additional costs of...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Suppose a company is looking to hedge a risk in the derivatives market. What, fundamentally, is...
- Training and Development assignment. Describe the usage of Computer Based Training (CBT) in McDonald's Company training...
- PUT IN JAVA PROGRAMMING LANGUAGE The Rectangle class: Design a class named Rectangle to represent a...
- Journal article summary on inter-group conflict Peer Reviewed Journal article from past 3 years. Please include...
- "Ethical Considerations" Please respond to the following: Reflect upon the responsibilities placed on auditors by the...
- A Japanese company has a bond outstanding that sells for 93 percent of its ¥100,000 par...
- What is the difference among the principles of modularization, abstraction, encapsulation, and separation of interface and...
ADVERTISEMENT