Answered: Benefits: Increased sales tax revenue…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A proposal has been made for improving the downtown area of a small town. The plan calls for banning vehicular traffic on the main street and turning this street into a pedestrian mall with tree plantings and other beautification features. This plan will involve actual costs of $6,000,000 and, according to its proponents, the plan will produce benefits and disbenefits to the town as follows (shown): Solve, a. Compute the B–C ratio of this plan based on a MARR of 10% per year and an infinite life for the project. b. How does the B–C ratio change for a 20-year project life?

Benefits:
Increased sales tax revenue
$450,000 per year
Increased real estate property taxes $325,000 per year
Benefits due to decreased air pollution $80,000 per year
Quality of life improvements to users $70,000 per year
Disbenefits:
Increased maintenance
$175,000 per year

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