A tax exempt municipality is considering the construction of a new municipal was
ID: 2442632 • Letter: A
Question
A tax exempt municipality is considering the construction of a new municipal waste water treatment facility. Two different sites have been selected as technically, politically, socially, and financially feasible. The city council uses 6% interest rate for all analyses for public projects. The expected cash flow for the two alternatives are as follow:
What is the incremental benefit/cost ratio?
Enter your answer as follow: 12.34
Year Alt. A Alt. B 0 - $13064021 - $27542429 1 - 75 $1636940/year $3211877/yearExplanation / Answer
Time = 75 years
R = 6%
Uniform annual investment of alternative A = 13064021/((1-1/1.06^75)/.06)
Uniform annual investment of alternative A = $793883.18
Uniform annual investment of alternative B = 27542429/((1-1/1.06^75)/.06)
Uniform annual investment of alternative B = $1673716.77
So, incremental annual cost = 1673716.77-793883.18 = $879833.59
Incremental annual benefit = 3211877-1636940 = $1574937
Incremental B/C ratio = Incremental annual benefit / incremental annual cost
Incremental B/C ratio = 1574937/879833.59
Incremental B/C ratio = 1.79
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