Given the following estimates and an interest rate of 6%, calculate the conventi
ID: 1121028 • Letter: G
Question
Given the following estimates and an interest rate of 6%, calculate the conventional B/C ratio and the modified B/C ratio
First Cost ($)
250,000
M & O Costs ($ per year)
35,000
Benefits($ per year)
55,000
Disbenefits ($ per year)
12,000
Savings ($ per year)
15,000
Life
30
A)Conventional B/C=1.13, Modified B/C=1.27
B)Conventional B/C=1.09, Modified B/C=2.53
C)Conventional B/C=0.63, Modified B/C=0.39
D)Conventional B/C=0.16, Modified B/C=0.09
First Cost ($)
250,000
M & O Costs ($ per year)
35,000
Benefits($ per year)
55,000
Disbenefits ($ per year)
12,000
Savings ($ per year)
15,000
Life
30
Explanation / Answer
Conventional B/C ratio = PW of Benefits / (Initial cost + PW of O & M cost - PW of Salvage value)
= 425,000(P/A, 6%, 30) / [2,500,000 + 170,000(P/A, 6%, 30) - 500,000(P/F, 6%, 30)]
= 425,000(13.7648) / [2,500,000 + 170,000(13.7648) - 500,000(0.1741)]
= 5,850,040 / (2,500,000 + 2,340,016 - 87,050)
= 5,850,040 / 4,752,966
= 1.23
Modified B/C ratio = (PW of Benefits - PW of O & M cost) / (Initial cost - PW of Salvage value)
= (5,850,040 - 2,340,016) / (2,500,000 - 87,050)
= 3,510,024 / 2,412,950
= 1.45
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.