The estimated present cost to start a proposed municipal government project is $5,500,000. The annual operation cost of the project is $70,000. The estimated benefits from this project to the public are $470,000 per year, and the estimated existing disbenefits are $100,000 per year. The project has an estimated life of 20 years. a) Calculate the modified B/C ratio at an interest rate of 6% per year, and determine if it is economically justified. b) Calculatetheprofitabilityindexataninterestrateof6% peryear.
The estimated present cost to start a proposed municipal government project is $5,500,000. The annual operation cost of the project is $70,000. The estimated benefits from this project to the public are $470,000 per year, and the estimated existing disbenefits are $100,000 per year. The project has an estimated life of 20 years. a) Calculate the modified B/C ratio at an interest rate of 6% per year, and determine if it is economically justified. b) Calculatetheprofitabilityindexataninterestrateof6% peryear.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![The estimated present cost to start a proposed municipal government project is $5,500,000. The annual operation cost of the
project is $70,000. The estimated benefits from this project to the public are $470, 000 per year, and the estimated existing
disbenefits are $100,000 per year. The project has an estimated life of 20 years. a) Calculate the modified B/C ratio at an
interest rate of 6% per year, and determine if it is economically justified. b) Calculatetheprofitabilityindexataninterestrateof6%
peryear.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fccbe412d-a78a-4139-ae3b-657bdc083aec%2F0d6cd0fe-f3e0-46cc-a19d-6e281ef67ad5%2F185dx2r_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The estimated present cost to start a proposed municipal government project is $5,500,000. The annual operation cost of the
project is $70,000. The estimated benefits from this project to the public are $470, 000 per year, and the estimated existing
disbenefits are $100,000 per year. The project has an estimated life of 20 years. a) Calculate the modified B/C ratio at an
interest rate of 6% per year, and determine if it is economically justified. b) Calculatetheprofitabilityindexataninterestrateof6%
peryear.
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