Problem 07.007 - Conventional B/C ratio for road improvement projectThe cost of grading and spreading gravel on a curvy rural road is expected to be $300,000. The road will have to be maintained at acost of $34,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only bereached with off-road vehicles. The improved accessibility has led to a 144% increase in the property values along the road. If theprevious market value of the property was $900,000, calculate the conventional B/C ratio using an interest rate of 6% per year and a20-year study period.The conventional B/C ratio is

B/C ratio is the ratio of the present value of benefits to the present value of cost of project and…

Answered: Problem 07.007 - Conventional B/C ratio…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 15P

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The first cost of grading and spreading gravel on a short rural road is expected to be $700,000. The road will have to be maintained at a cost of $25,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off-road vehicles. This improved accessibility has increased the property values along the road from $400,000 to $600,000. The conventional B/C ratio at an interest rate of 6% per year for a 10-year study period is closest to: (a) 1.3 (b) 1.7 (c) 2.1 (d) 2.8
The cost of grading and spreading gravel on a short rural road is expected to be $300,000. The road will have to be maintained at a cost of $25,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off-road vehicles. The improved accessibility has led to a 150% increase in the property values along the road. If the previous market value of a property was $900,000, calculate the B/C ratio using an interest rate of 6% per year and a 20-year study period. ENGINEERING ECONOMICS Lesson: Economic Study Methods
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A highway is to be built connecting Maud and Bowlegs. Route A follows the old road and costs $4 million initially and $210,000/year thereafter. A new route, B, will cost $6 million initially and $180,000/year thereafter. Route C is an enhanced version of Route B with wider lanes, shoulders, and so on. Route C will cost $9 million at first, plus $260,000 per year to maintain. Benefits to the users, considering time, operation, and safety, are $500,000 per year for A, $850,000 per year for B, and $1,000,000 per year for C. Using a 7% interest rate, a 15-year study period, and a salvage value of 50% of first cost, determine which road should be constructed.
A project has been proposed that will involve making an expenditure of $300,000 today to control phosphorous runoff in agricultural lands of the Fox-Wolf Watershed. Assume this effort would not pay off until 25 years from now, at which time it would reduce $1.5 million in environmental damages by eliminating a "dead spot" in the Bay of Green Bay. Choose the discount rate(s) below that would result in a favorable decision on this project. O 1% O 1% and 3% O 1%, 3%, and 5% O 1%, 3%, 5%, and 7% O 1%, 3%, 5%, 7%, and 9%
A one-mile section of a roadway in Florida has been washed out by heavy rainfall. The county is considering two options for rebuilding the road. Pertinent data are presented below. If the county’s MARR for this type of project is 5% per year, which replacement option should be chosen? Stateyour assumptions.
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A proposal is being considered to improve an existing road connecting two medium size cities in West Africa to reduce transportation costs. The cost of the project is $1,000,000. Present annual transportation cost for all traffic amounts to $1,270,000 per year and would continue if no improvement is made. After the improvement, annual transportation costs are estimated to be $1,166,000. Assume the life of the project 20 years, and MARR is 12%. Should the project be undertaken? Evaluate this proposal by using the net present value method, benefit/cost method, and internal rate of return method. Assume costs appear at the beginning of each year while benefits at the end of a year.
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A local government awards a landscaping company a contract worth $1.30 million per year for five years for maintaining public parks. The landscaping company will need to buy some new machinery before they can take on the contract. If the cost of capital is 5%, what is the most that this equipment could cost if the contract is to be worthwhile for the landscaping company? A. $5.35 million B. $5.63 million C. $5.91 million D. $5.07 million
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In building a highway, the district engineer is faced with the alternatives of building a 4-lane underpass that would take care of all future needs of building or a 2-lane underpass now and a second underpass 20 years later. For the 4-lane underpass:First cost = ₱ 400,000Annual maintenance cost = ₱ 10,000No salvage valueFor the 2-lane underpass:First cost = ₱ 270,000Annual maintenance cost = ₱ 8,000No salvage valueWhich of the following gives us the best alternative that should be adopted by showing the difference of its equivalent present worth

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