A nonprofit go ernment corporation is considering two alternatives for generatin
ID: 2788976 • Letter: A
Question
A nonprofit go ernment corporation is considering two alternatives for generating power. The useful life of both alternatives is 35 according to the conventional B-C-ratio method. ears. Using an interest rate o 4%, determine which alternative if either should be selected Click the icon to viow tho additional infommation about the altermatives Click the icon to view the interest and annuity table for discrete compounding wie n the MARRIS 4% per year. Perform the conventional B-C Analysis. Fill-in the table below. (Round to two decimal places.)Explanation / Answer
Alternative A
cost of project
20000000
annual benefits
sales+ benefit of new industry-operating cost
1100000+550000-200000
1450000
Present value of annual benefit at 4% for 35 years
PVAF * annual benefit
1450000*18.6646
27063670
PVAF at 4% for 35 years
18.6646
annual benefits
1450000
present value of cash outflow
20000000
Benefit cost ratio
sum of present value of annual benefits/present value of cash outflow
27063670/20000000
1.35
Alternative B
cost of project
32000000
annual benefits
sales+ benefit of new industry+ recreation+ irrigation+ flood control savings-operating cost
800000+550000+150000+50000+350000-120000
1780000
Present value of annual benefit at 4% for 35 years
PVAF * annual benefit
1780000*18.6646
33222988
PVAF at 4% for 35 years
18.6646
annual benefits
1780000
present value of cash outflow
32000000
Benefit cost ratio
sum of present value of annual benefits/present value of cash outflow
33222988/32000000
1.04
Alternative A should be selected as it result In more Benefit cost ratio
Alternative A
cost of project
20000000
annual benefits
sales+ benefit of new industry-operating cost
1100000+550000-200000
1450000
Present value of annual benefit at 4% for 35 years
PVAF * annual benefit
1450000*18.6646
27063670
PVAF at 4% for 35 years
18.6646
annual benefits
1450000
present value of cash outflow
20000000
Benefit cost ratio
sum of present value of annual benefits/present value of cash outflow
27063670/20000000
1.35
Alternative B
cost of project
32000000
annual benefits
sales+ benefit of new industry+ recreation+ irrigation+ flood control savings-operating cost
800000+550000+150000+50000+350000-120000
1780000
Present value of annual benefit at 4% for 35 years
PVAF * annual benefit
1780000*18.6646
33222988
PVAF at 4% for 35 years
18.6646
annual benefits
1780000
present value of cash outflow
32000000
Benefit cost ratio
sum of present value of annual benefits/present value of cash outflow
33222988/32000000
1.04
Alternative A should be selected as it result In more Benefit cost ratio
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