4. An alternative has the following cash flows: benefits $50,000 per year; dis-b

Question

4. An alternative has the following cash flows: benefits $50,000 per year; dis-benefits- $27,000 per year; Initial cost $250,000; O&M; costs of $10,000 per year. If the alternative has an infinite life and the interest rate is l 5% per year, the conventional B/C ratio is closest to: A. 0.91 Formula used: B. 0.66 C. 0.52 D. 0.48 5. Ifs If $1000 is invested now, the future dollars required 10 years from now to earn a real interest rate of 6% per year, when the inflation rate is 4% per year, is closest to: A. $1480 B. $1790 C. $2650 D. Over $2700 Formula used:

Explanation / Answer

4) Option D is correct

B = (50000 - 27000)/0.15 = $153333.3

C = 250000 + 10000/0.15 = $316666.7

B/C = 0.48

5) Option C is correct

FV = 1000 x (1 + 6%)10 x (1 + 4%)10 = $2650

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