2. The Citiville Town Council is considering construct following data are associ

Question

2. The Citiville Town Council is considering construct following data are associated with the three top bids that have been received for consideration: ing a new waste management facility. The Alternative Useful Life, Years 10 Initial Cost $725,000 $895,000 $640,000 Annual Benefit 150,000 185,000 100,000 Annual M&O; 30,000 40,000 20,000 10 10 Using benefit-cost ratio analysis, determine which alternative should be selected (if any). Assume an interest rate of 5% per year. As a municipality, Citiville pays no taxes.

Explanation / Answer

Answer to the Question

Alternative B should be selected since NPV is more .

Year A B C 0                (725,000)                        (895,000)               (640,000) 1-10 120000 145000 80000 PVAF(10,6%) 7.36 7.36 7.36 Present Value of Future Cash flow                 883,200                       1,067,200                588,800 NPV                 158,200                         172,200                 (51,200)

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