A local municipality is considering investing $210,000 to upgrade a park. Based on similar investments made by similar cities, it is anticipated the investment will result in annual costs and annual benefits over a 15-year period as shown in the cash flow profile given below in thousands of dollars. Notice, an intermediate investment of $130,000 is anticipated in the 6th year of the investment. Based on a MARR of 3%, use benefit-cost ratio analysis to determine whether the investment should be made. (All values in thousand dollars) End-of Year Net Cash Costs Benefits Flow 0 $210 -$210 1 $70 $115 $45 2 $70 $125 $55 3 $70 $135 $65 4 $70 $145 $75 5 $70 $155 $85 6 $200 $165 -$35 7 $70 $155 $85 8 $70 $145 $75 9 $70 $135 $65 10 $70 $125 $55 11 $70 $115 $45 12 $70 05 $35 W 13 $70 $95 $25 14 $70 $85 $15 15 $70 $75 $5

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
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A local municipality is considering investing $210,000 to upgrade a park. Based on similar investments made by similar cities, it is
anticipated the investment will result in annual costs and annual benefits over a 15-year period as shown in the cash flow profile given
below in thousands of dollars. Notice, an intermediate investment of $130,000 is anticipated in the 6th year of the investment. Based
on a MARR of 3%, use benefit-cost ratio analysis to determine whether the investment should be made.
(All values in thousand dollars)
End-of
Year
Net Cash
Costs
Benefits
Flow
0
$210
-$210
1
$70
$115
$45
2
$70
$125
$55
3
$70
$135
$65
4
$70
$145
$75
5
$70
$155
$85
67
$200
$165
-$35
$70
$155
$85
8
$70
$145
$75
6
$70
$135
$65
10
$70
$125
$55
11
$70
$115
$45
12
$70
05
$35
W
13
$70
$95
$25
14
$70
$85
$15
15
$70
$75
$5
Click here to access the TVM Factor Table calculator.
B/C-
final answer to 4 decimal places. The tolerance is 10.0003.
Transcribed Image Text:A local municipality is considering investing $210,000 to upgrade a park. Based on similar investments made by similar cities, it is anticipated the investment will result in annual costs and annual benefits over a 15-year period as shown in the cash flow profile given below in thousands of dollars. Notice, an intermediate investment of $130,000 is anticipated in the 6th year of the investment. Based on a MARR of 3%, use benefit-cost ratio analysis to determine whether the investment should be made. (All values in thousand dollars) End-of Year Net Cash Costs Benefits Flow 0 $210 -$210 1 $70 $115 $45 2 $70 $125 $55 3 $70 $135 $65 4 $70 $145 $75 5 $70 $155 $85 67 $200 $165 -$35 $70 $155 $85 8 $70 $145 $75 6 $70 $135 $65 10 $70 $125 $55 11 $70 $115 $45 12 $70 05 $35 W 13 $70 $95 $25 14 $70 $85 $15 15 $70 $75 $5 Click here to access the TVM Factor Table calculator. B/C- final answer to 4 decimal places. The tolerance is 10.0003.
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