A school is overcrowded and there are three options. The do-nothing alternative corresponds to continuing to use modular classrooms. The school can be expanded, or a new school can be built to "split the load" between schools. If a new school is built, there are more benefits because more students will be able to walk to school, the average distance for those who ride the school buses will be shorter, and the schools will be smaller and more "student friendly". The disbenefits for the expanded school are due to the impact of the construction process during the school year. The interest rate is 8%, and the life of each alternative is 20 years. Which alternative should be selected? What is the incremental ratio for the preferred alternative?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
Solve ONLY D and E !!!
A school is overcrowded and there are three options. The do-nothing alternative corresponds to continuing
to use modular classrooms. The school can be expanded, or a new school can be built to "split the load"
between schools. If a new school is built, there are more benefits because more students will be able to
walk to school, the average distance for those who ride the school buses will be shorter, and the schools
will be smaller and more "student friendly". The disbenefits for the expanded school are due to the impact
of the construction process during the school year. The interest rate is 8%, and the life of each alternative is
20 years. Which alternative should be selected? What is the incremental ratio for the preferred alternative?
Expand
New School
User benefits ($M/yr)
2.1
3.1
User disbenefits ($M)
0.8
First Cost ($M)
8.8
10.4
O&M ($M/yr)
0.95
1.7
a) Use the benefit-cost ratio
b) Use the modified benefit-cost ratio
c) Use the public/government version of the B/C ratio
d) Assume these numbers apply to a private firm and use a present worth index
e) Are your recommendations for a) through d) consistent? Which measure gives the largest value? Why?
Solve ONLY D and E !!!
Transcribed Image Text:Solve ONLY D and E !!! A school is overcrowded and there are three options. The do-nothing alternative corresponds to continuing to use modular classrooms. The school can be expanded, or a new school can be built to "split the load" between schools. If a new school is built, there are more benefits because more students will be able to walk to school, the average distance for those who ride the school buses will be shorter, and the schools will be smaller and more "student friendly". The disbenefits for the expanded school are due to the impact of the construction process during the school year. The interest rate is 8%, and the life of each alternative is 20 years. Which alternative should be selected? What is the incremental ratio for the preferred alternative? Expand New School User benefits ($M/yr) 2.1 3.1 User disbenefits ($M) 0.8 First Cost ($M) 8.8 10.4 O&M ($M/yr) 0.95 1.7 a) Use the benefit-cost ratio b) Use the modified benefit-cost ratio c) Use the public/government version of the B/C ratio d) Assume these numbers apply to a private firm and use a present worth index e) Are your recommendations for a) through d) consistent? Which measure gives the largest value? Why? Solve ONLY D and E !!!
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Property Damage
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education