Four mutually exclusive projects are being considered for a new 2-mile jogging t
ID: 1160510 • Letter: F
Question
Four mutually exclusive projects are being considered for a new 2-mile jogging track. The life of the track is expected to be 80 years, and the sponsoring agencys MARR is 11% per year. Annual benefits to the public have been estimated by an advisory commsee and are shown below. Use the B-C method (incrementally) to select the best jogging track. Alternative Initisl cost Annual benefits B.C ratio $58,000 $8,500 1.33 S50,000 7,000 1.27 S60,000 $145,000 511,000 $21,000 1.32 1.67 Perform the incremental B-C Analysis. Fill-in the table below Round to two decimal places.) Alternative Inc. B-C ratio s the alternative acceptable? 1.27 YesExplanation / Answer
Alternatives
Inc. B/C Ratio
Acceptable
Between A and B
Incremental Initial Cost = 58,000 – 50,000 = 8,000
Incremental Annual Benefits = 8,500 – 7,000 = 1,500
B/C Ratio
= PW of Benefits/Initial Cost
= 1,500 (P/A, 11%, 80)/8000
= 1,500(9.089)/8000 = 1.70
Accept Alternative A
Between C and A
Incremental Initial Cost = 60,000 – 58,000 = 2,000
Incremental Annual Benefits = 11,000 – 8,500 = 2,500
B/C Ratio
= PW of Benefits/Initial Cost
= 2,500 (P/A, 11%, 80)/2000
= 2,500(9.089)/2000 = 11.36
Accept Alternative C
Between D and C
Incremental Initial Cost = 145,000 – 60,000 = 85,000
Incremental Annual Benefits = 21,000 – 11,000 = 10,000
B/C Ratio
= PW of Benefits/Initial Cost
= 10,000 (P/A, 11%, 80)/85,000
= 10,000(9.089)/85,000 = 1.06
Accept Alternative D
Alternatives
Inc. B/C Ratio
Acceptable
Between A and B
Incremental Initial Cost = 58,000 – 50,000 = 8,000
Incremental Annual Benefits = 8,500 – 7,000 = 1,500
B/C Ratio
= PW of Benefits/Initial Cost
= 1,500 (P/A, 11%, 80)/8000
= 1,500(9.089)/8000 = 1.70
Accept Alternative A
Between C and A
Incremental Initial Cost = 60,000 – 58,000 = 2,000
Incremental Annual Benefits = 11,000 – 8,500 = 2,500
B/C Ratio
= PW of Benefits/Initial Cost
= 2,500 (P/A, 11%, 80)/2000
= 2,500(9.089)/2000 = 11.36
Accept Alternative C
Between D and C
Incremental Initial Cost = 145,000 – 60,000 = 85,000
Incremental Annual Benefits = 21,000 – 11,000 = 10,000
B/C Ratio
= PW of Benefits/Initial Cost
= 10,000 (P/A, 11%, 80)/85,000
= 10,000(9.089)/85,000 = 1.06
Accept Alternative D
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