A local city that operates automobile parking facilities is evaluating a proposa

Question

A local city that operates automobile parking facilities is evaluating a proposal that erect and operate a structure for parking in the city's downtown area. Three designs for the facilities to be built on available sites have been identified (all dollar are in thousands) All of the alternatives have a 30 year useful life:

If the city's interest rate is 10%, what is the B/C ratio for alternative B?

1.24

1.65

.95

.37

A B C Capital Investment $2,440 $880 $1,600 Annual O&M $410 $360 $310 Salvage Value $0 $0 $0 Annual Benefit $830 $750 $600

Explanation / Answer

Proposals A B C Capital Investment 2440 880 1600 Annual Benefits 830 750 600 Annual Operations and Maintenannce 410 360 310 10% Annual Interest cost 244 88 160 Present value Factor 10.3696 Total annual Saving 176 302 130 Present value of annual benefits Annaul benefits* PVAF 10% for 30 Years Present value of Annual Benefits $8,606.77 7777.2 6221.76 Present value of Annual cost 6781.7184 4645.581 4873.712 B/c Ratio = Present value of annual benefits/ present value of annual cost B/C ratio $1.27 1.674107 1.276596 option B is most suitable having highest B/C Ratio

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