2 The city of Calgary has a new subdivision, Paradise Mountain, at its outskirts. The city wants to encourage the growth of Paradise Mountain by improving transportation between Paradise Mountain and the centre of Calgary. Two alternatives are being considered: (1) new buseson the route between Paradise Mountain and Calgary and (2) improvement of the road between Paradise Mountain and Calgary.Both projects will have as their main benefit improved transportation between Paradise Mountain and Calgary. Rather than measuring the value of this benefit directly to the city, engineers have estimated the benefit in terms of an increase in the value of land in ParadiseMountain. That is, potential residents are expected to show their evaluations of the present worth of improved access to the town centre by their willingness to pay more for homes in Paradise Mountain.The road improvement will entail construction cost and increased operating and maintenance costs. In addition, the improved road will require construction of a parking garage in the centre of Calgary. The new buses will have a first cost as well as operating and maintenancecosts. Information about the two alternatives is shown below. Complete parts (a) through (c).First CostPW (operating and maintenance cost)Parking garage costEstimated increased land valueRoad Improvement$14,500,000$4,500,000$3,500,000$27,000,000a. Compute the benefit-cost ratio of both alternatives. Is each individually viable?Considering the parking garage as a cost, the Road Improvement's benefit-cost ratio isNew Buses$3,750,000$12,000,000$17,500,000The benefit-cost ratio for the New Buses is▼are individually viable.The parking garage can be considered as a benefit reduction instead of a cost, as well. Considering the parking garage as a benefit reduction, the Road Improvement's benefit-cost ratio isa benefit reduction rather than a cost.(Round to three decimal places as needed.)b. Using an incremental benefit-cost ratio approach, which of the two alternatives should be chosen?Using the incremental benefit-cost ratio approach, if the parking garage is considered as a cost, then the benefit-cost ratio (Road Improvement - New Buses) would beImprovement - New Buses) would be. Thealternative should be chosen in either case.(Round to three decimal places as needed.)c. Compute the present worths of the two alternatives. Compare the decision based on present worths with the decisions based on benefit-cost.are individually viable, considering the parking garage asIf the parking garage is considered as a benefit reduction, then the benefit-cost ratio (RoadThe net present worth of the Road Improvement is $. The net present worth of the New Buses is $. Considering the parking garage as a cost, the incremental benefit-cost ratio ispresent worththan the New Buses. Now, considering the parking garage as a benefit reduction, the incremental benefit-cost ratio isthan 1, in which case it is(Round to the nearest dollar as needed.)than 1, in which case it iswith the Road Improvement having awith the Road Improvement having a present worth ▼than the New Buses.

The city of Calgary is trying to improve the connectivity between the Paradise Mountain situated in…

a. Compute the benefit-cost ratio of both alternatives. Is each individually viable? Considering the parking garage as a cost, the Road Improvement's benefit-cost ratio is The benefit-cost ratio for the New Buses is are individually viable. The parking garage can be considered as a benefit reduction instead of a cost, as well. Considering the parking garage as a benefit reduction, the Road Improvement's benefit-cost ratio is a benefit reduction rather than a cost. (Round to three decimal places as needed.) b. Using an incremental benefit-cost ratio approach, which of the two alternatives should be chosen? Using the incremental benefit-cost ratio approach, if the parking garage is considered as a cost, then the benefit-cost ratio (Road Improvement - New Buses) would be. If the parking garage is considered as a benefit reduction, then the benefit-cost ratio (Road Improvement - New Buses) would be. The alternative should be chosen in either case. (Round to three decimal places as needed.) c. Compute the present worths of the two alternatives. Compare the decision based on present worths with the decisions based on benefit-cost. The net present worth of the Road Improvement is $. The net present worth of the New Buses is $. Considering the parking garage as a cost, the incremental benefit-cost ratio is present worth than the New Buses. Now, considering the parking garage as a benefit reduction, the incremental benefit-cost ratio is than 1, in which case it is (Round to the nearest dollar as needed.) are individually viable, considering the parking garage as than 1, in which case it is with the Road Improvement having a present worth with the Road Improvement having a than the New Buses.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q