2. shown below are for projects to be considered to ed road intersection in Shar

Question

2. shown below are for projects to be considered to ed road intersection in Sharjah. Using a B/C analysis, at per year and a 10 year study period. You are required prove the traffic at a to do the following: a. Calculate the B/C ratio for alternative A b. Calculate the B/C ratio for alternative B C. Do the incremental B/C analysis d. Choose the best alternative Alternative A Alternative First cost, S Annual M & O, $/year Benefits, $/year Dis-benefits, $/year 38,000 49,000 110,000 26,000 87,000 64,000 160,000 1, B/C ratio for alternative A 2. B/C ratio for alternative B 3. The incremental B/C ratio 4. The best alternative

Explanation / Answer

2.

R = 7%

Time = 10 years

Annualized first cost for alternative A = 38000/((1-1/1.07^10)/.07) = $5410.35

Annualized first cost for alternative B = 87000/((1-1/1.07^10)/.07) = $12386.84

A.

B/C ratio for alternative A = (annual benefits – annual disbenefits)/total annual cost

B/C ratio for alternative A = (110000-26000)/(5410.35+49000)

B/C ratio for alternative A = 1.54

B.

B/C ratio for alternative B = (annual benefits – annual disbenefits)/total annual cost

B/C ratio for alternative B = (160000-0)/( 12386.84 + 64000)

B/C ratio for alternative B = 2.09

C.

Increment annual first cost = (12386.84 - 5410.35) = $6976.49

Incremental annual M & O cost = 64000-49000 = $15000

Incremental annual benefits = 160000-110000 = $50000

Incremental annual disbenefits = 0-26000 = -$26000

So,

Incremental B/C ratio (B over A) = (50000 - (-26000))/(6976.49+15000)

Incremental B/C ratio (B over A)= 3.46

D.

Since, incremental B/C ratio of B over A, is 3.46 and B/C ratio of B is greater than that of A, then alternative B should be selected.

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