a 20-year study7.24 You work for the New Mexico Department ofTransportation (NMDOT). Two proposals to im-prove street safety and lighting in a colonia in southcentral New Mexico have been proposed. (a) Use aB/C analysis and a discount rate of 8% per year toevaluate the proposals. (b) (Here is a thought ques-tion.) If you reevaluate proposal 1 benefits and findthem to be understated by $100,000 per year, ben-efits will increase from $530,000 to $630,000 peryear. Now, the evaluation (1 vs. DN) will have aB/C = 1.30. There are three questions: (1) Whatwill be the time basis of the incremental evalua-tion? (2) Using the comparison terminology "largerinitial cost" vs. "smaller initial cost," what will bethe order of incremental comparison between thetwo proposals: (1 vs. 2) or (2 vs. 1)? (3) Whichproposal will be selected now? Why?

Step 1:(a) Use a B/C analysis and a discount rate of 8% per year to evaluate the proposals.The…

Answered: a 20-year study 7.24 You work for the…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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