A county will invest $3,600,000 to clean up a chemical spill that occurred following a natural disaster. At the end of the 9-year planninghorizon, an additional $900,000 will be spent in restoring the site to an environmentally acceptable condition. The investment isexpected to produce net annual benefits that will decrease by 25% each year. The net annual public benefit in the 1st year is estimated tobe $2,400,000. Determine the B/C ratio for the investment using a 5% MARR.Click here to access the TVM Factor Table calculator.|B/C=Carry all interim calculations to 5 decimal places and then round your final answer to 3 decimal places. The tolerance is ±0.003. The benefit-cost ratio (B/C) is the ratio of the present worth of net public benefits to the present worth of net government costsusing i = MARR.To illustrate the mathematics of benefit-cost analysis:Bjtnet public benefits (benefits minus disbenefits, expressed as money) associated with alternativej during year t t = 1; 2;...;n.Cit¡====net government costs (costs minus residuals such as salvage values) associated with alternativej during year t, t = 1; 2; ...;n.n length of the planning horizon.appropriate interest or discount rate.B/C, (t) ==The B/C criterion may be expressed mathematically, using the present worth of all net benefits over the present worth of all netcosts, asΣ1 B (1 + x) =*Σo C(1+1)*

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Answered: A county will invest $3,600,000 to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales: Year 1 Year 2 Year 3 Year 4 Year 5 50,000 66,400 81,200 68,500 54,500 The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or…
A city starts a solid waste landfill that it expects to fill to capacity gradually over a 12-year period. At the end of the first year, it is 7 percent filled. At the end of the second year, it is 17 percent filled. Currently, the cost of closure and postclosure is estimated at $1 million. None of this amount will be paid until the landfill has reached its capacity. Which of the following is true for the Year 2 government-wide financial statements? a. Expense will be $100,000 and liability will be $170,000. b. Both expense and liability will be $100,000. c. Expense will be $90,000 and liability will be $180,000. d. Both expense and liability will be zero.
On January 1, 2020, the City of Hastings creates a solid waste landfill that it expects to reach capacity gradually over the next 20 years. If the landfill were to be closed at the current time, closure costs would be approximately $1.65 million plus an additional $900,000 for postclosure work. Of these totals, the city must pay $63,900 on December 31 of each year for preliminary closure work. At the end of 2020, the landfill reaches 4 percent of capacity. At the end of 2021, the landfill reaches 18 percent of capacity. At the end of 2021, a reassessment is made. Experts determine total closure costs will be $1.85 million rather than $1.65 million. a. Assume the city views the landfill as an enterprise fund. What journal entries should the city make in 2020 and 2021 in preparing government-wide financial statements? b. Assume the city views the landfill as being within the general fund. What journal entries should the city make in 2020 and 2021 in preparing government-wide financial…
The state of Glottamora has $100 million remaining in its budget for the current year. One alternative is to give Glottamorans a one-time tax rebate. Alternatively, two proposals have been made for state expenditures of these funds. The first proposed project is to invest in a new power plant, costing $100 million and having an expected useful life of 20 years. Projected benefits accruing from this project are as follows:YEARS BENEFITS PER YEAR ($ MILLIONS)1–5 06–20 20The second alternative is to undertake a job retraining program, also costing $100 million and generating the following benefits:YEARS BENEFITS PER YEAR ($ MILLIONS)1–5 206–10 1411–20 4The state Power Department argues that a 5 percent discount factor should be used in evaluating the projects because that is the government’s…
The college is considering funding options for new engineering building on campus. The money has been raised for the construction costs and now the focus is raising funds for the annual upkeep and maintenance (U&M) expenses. For this building, contractors will be hired with a series of 3-year agreements over the 30 years. Under each contract the university will pay $125,000 at the beginning of each 3-year agreement to cover all U&M building expenses over that 3-year period. The first 3-year agreement begins when the building opens. A wealthy alumnus (you one day) has agreed to donate enough at the building opening to cover the U&M expenses over the 30- year term. If money invested by the school's engineering foundation earns 6% interest compounded quarterly, how much must be donated. (Hint: Build a spreadsheet like the one below) Year 0 3 6 9 12 15 18 21 24 27 Cost Rate Cash Flow FERH $125,000 $ 125,000.00 Present Worth 6% $125,000 3 year U&M Contract Cost Annual Interest Rate…
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A city government adds streetlights within its boundaries at a total cost of $336,000. These lights should burn for at least 12 years but can last significantly longer if maintained properly. The city develops a system to monitor these lights with the goal that 97 percent will be working at any one time. During the year, the city spends $50,200 to clean and repair the lights so that they are working according to the specified conditions. The city also spends another $87,600 to construct lights for several new streets. a. Prepare the entries assuming infrastructure assets are capitalized with depreciation recorded on government-wide financial statements. b. Prepare the entries assuming infrastructure assets are capitalized with government using the modified approach on government- wide financial statements. Complete this question by entering your answers in the tabs below. Required A Required B Prepare the entries assuming infrastructure assets are capitalized with depreciation recorded…
One of two alternatives will be selected to reduce flood damage in a rural community in central Arizona. The estimates associated with each alternative are available. Use B/C analysis at a discount rate of 8% per year over a 20-year study period to determine which alternative should be selected. For analysis purposes only, assume the flood damage would be prevented in years 3, 9, and 18 of the study period. Retention Pond Channel Initial cost, $ 880,000 2,900,000 Annual maintenance, $/year 92,000 30,000 Reduced flood damage, $ 200,000 600,000
11) The Department of Public Works has $1.1 million to allocate amongst several public projects. Data on these projects are presented in the following table: Annual benefit, Project First cost, $K $K/year Life, years 400 100 10 B 300 100 25 250 80 15 500 70 40 350 90 10 200 60 20 Using a MARR of 15%, rank the projects by their BCR, and comment on the most efficient way to allocate $1.1 million.
A tax exempt municipality is considering the construction of a new municipal waste water treatment facility. Two different sites have been selected as technically, politically, socially, and financially feasible. The city council uses 6% interest rate for all analyses for public projects. The expected cash flow for the two alternatives are as follow: Year Alt. A Alt. B 0 - $15,072,472 - $25,872,924 1 - 75 $2,187,697/year $3,090,903/year What is the incremental benefit/cost ratio?
Arlington Town uses an Internal Service Fund to account for its motor poolactivities. You have the following information:Automobiles: The Motor Pool uses two 6-passenger vans, each costing $90,000and each estimated to have a 5-year life when they were acquired in 2020.Driver salaries: The Motor Pool has a driver-administrator, who earns $90,000a year, and a driver, who earns $70,000.The town uses a rate of 33 percent (to cover benefits, including pensions)for planning purposes.Insurance: In 2020, the town purchased a 3-year automobile accident policyat a cost of $12,000.Fuel and maintenance costs: Based on experience, the driver-administratorestimates that total fuel and maintenance costs for the year will be $16,000.Billing units: To simplify its record keeping, the Motor Pool charges a fixed priceper trip. Arlington’s budget office estimates it will provide 1,600 trips to thetown’s departments in 2021.Arlington Town had the following transactions and events during January 2021:1.…

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