The Adams Construction Company is bidding on a project to install a large flood

Question

The Adams Construction Company is bidding on a project to install a large flood drainage culvert from Dandridge to a distant lake. If they bid $2,000,000 for the job, what is the benefit-cost ratio in view of the following data? Is the project acceptable? The MARR is 6% per year, and the project's life is 30 years. Assume that major upkeep maintenance is required every 6 years, beginning in year 6; assume that no major upkeep maintenance is performed at the end of the project lifetime, in year 30.

Explanation / Answer

Cost benefit ratio is that type of ratio which describes the relationship between cost and benefits of a project.

Here MARR is 6 %. It means this is mininmum acceptable return.

Here $ 30000 have to invest for every year and $ 50000 upkeep for 6 years. But we are getting annual benefits to taxpayers of $ 135000.Annual benefits are more than annually cost.

so we should accept this offer.

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