The plan for one of the Princes\' Islands in Istanbul is to ban vehicular traffi

Question

The plan for one of the Princes' Islands in Istanbul is to ban vehicular traffic on the main street and turning this street into a pedestrian mal with tree plantings and other beautification features. This plan will involve actual costs of 6.1 million TL and, according to its proponents, the plan will produce benefits and disbenefits to the town as follows Benefits: Increased sales tax revenue per vear Increased real estate property taxes per year: 315,000 TL Benefits due to decreased air pollution per year: 70,000 TL Quality of life improvements to users per year:70,000 TL 440,000 TL Disbenefits: Increased maintenance per vear : 160,000 TL Compute the conventional B-C ratio of this plan based on a MARR of 10% per year and a 17-year project life. Use AW as the equivalent worth method Benefits (AW): Disbenefits (AW): Costs (AW) (9 points) (9 points) (10 points) Conventional B-C ratio Benefits reduced by amount of disbenefits (10 points) Accept? : (5 points) (10 points) Accept? Costs increased by: amount of disbenefits (5 points)

Explanation / Answer

Answer-

Benefits (AW) = increased sales tax revenue/ year + increased property tax/ year + benefits of decrease in pollution/ year + benefit of quality of life per year

Benefits (AW) = 440000 + 315000 + 70000 + 70000 = 895000 TL

Disbenefits (AW) = increased maintenance per year = 160000 TL

Let, UAC = AWc

Then,

6100000 = AWc*(1-1/1.1^17)/.1 = AWc*5.0544

AWc = 6100000/5.0544

AWc = 1206869.2 TL

So,

Cost (AW) = 1206869.2 TL

Benefits reduced by amount of disbenefits = 895000 – 160000 = 735000 TL (accepted)

Cost increased by amount of disbenefits = 1206869.2 + 160000 = 1366869.2 TL

Conventional B-C ratio = Benefits (AW) / (Cost (AW) + Disbenefits (AW))

Conventional B-C ratio = 895000/(1206869.2 + 160000)

Conventional B-C ratio = 0.6547

Since the conventional B-C ratio is less than 1, so project should not be accepted.

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