Calculate the Benefit cos ratio.

Question

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Answer 1

Question

Chapter 10, Problem 1P

To determine

Calculate the Benefit cos ratio.

Expert Solution & Answer

Explanation of Solution

Time period is denoted by n and the interest is denoted by i. Benefit cost ratio (BC)can be calculated as follows.

BC=Annual receipt−Annual expenseInvestment(i(1+i)n(1+i)n−1)−Salvage value(i(1+i)n−1)=100,000−50,000200,000(0.15(1+0.15)10(1+0.15)10−1)−10,000(0.15(1+.15)10−1)=1.27

The benefit cost ratio is 1.27. Since the BC value is greater than 1, it is acceptable project.

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The following estimates (in $1000 units) have been developed for a security system upgrade at Chicago’s O’Hare Airport. (a) Calculate the conventional B/C ratio at a discount rate of 10% per year. Is the project justified? (b) Determine the minimum first cost that is possible to render the project just economically unjustified. Item Cash Flow First cost, $ 13,000 AW of benefits, $ per year 3,800 FW of disbenefits, year 20, $ 6,750 M&O costs, $ per year 400 Life, years 20

When a B/C analysis is conducted, the benefits and costs: (a) Must be expressed in terms of their present worth values (b) Must be expressed in terms of their annual worth values (c) Must be expressed in terms of their future worth values (d) Can be expressed in terms of PW, AW, or FW

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Answer 2

Question

Chapter 10, Problem 1P

To determine

Calculate the Benefit cos ratio.

Expert Solution & Answer

Explanation of Solution

Time period is denoted by n and the interest is denoted by i. Benefit cost ratio (BC)can be calculated as follows.

BC=Annual receipt−Annual expenseInvestment(i(1+i)n(1+i)n−1)−Salvage value(i(1+i)n−1)=100,000−50,000200,000(0.15(1+0.15)10(1+0.15)10−1)−10,000(0.15(1+.15)10−1)=1.27

The benefit cost ratio is 1.27. Since the BC value is greater than 1, it is acceptable project.

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Answer 3

Question

Chapter 10, Problem 1P

To determine

Calculate the Benefit cos ratio.

Expert Solution & Answer

Explanation of Solution

Time period is denoted by n and the interest is denoted by i. Benefit cost ratio (BC)can be calculated as follows.

BC=Annual receipt−Annual expenseInvestment(i(1+i)n(1+i)n−1)−Salvage value(i(1+i)n−1)=100,000−50,000200,000(0.15(1+0.15)10(1+0.15)10−1)−10,000(0.15(1+.15)10−1)=1.27

The benefit cost ratio is 1.27. Since the BC value is greater than 1, it is acceptable project.

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Answer 4

Question

Chapter 10, Problem 1P

To determine

Calculate the Benefit cos ratio.

Expert Solution & Answer

Explanation of Solution

Time period is denoted by n and the interest is denoted by i. Benefit cost ratio (BC)can be calculated as follows.

BC=Annual receipt−Annual expenseInvestment(i(1+i)n(1+i)n−1)−Salvage value(i(1+i)n−1)=100,000−50,000200,000(0.15(1+0.15)10(1+0.15)10−1)−10,000(0.15(1+.15)10−1)=1.27

The benefit cost ratio is 1.27. Since the BC value is greater than 1, it is acceptable project.

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Answer 5

Chapter 10, Problem 1P

To determine

Calculate the Benefit cos ratio.

Expert Solution & Answer

Explanation of Solution

Time period is denoted by n and the interest is denoted by i. Benefit cost ratio (BC)can be calculated as follows.

BC=Annual receipt−Annual expenseInvestment(i(1+i)n(1+i)n−1)−Salvage value(i(1+i)n−1)=100,000−50,000200,000(0.15(1+0.15)10(1+0.15)10−1)−10,000(0.15(1+.15)10−1)=1.27

The benefit cost ratio is 1.27. Since the BC value is greater than 1, it is acceptable project.

Answer 6

Chapter 10, Problem 1P

To determine

Calculate the Benefit cos ratio.

Expert Solution & Answer

Explanation of Solution

Time period is denoted by n and the interest is denoted by i. Benefit cost ratio (BC)can be calculated as follows.

BC=Annual receipt−Annual expenseInvestment(i(1+i)n(1+i)n−1)−Salvage value(i(1+i)n−1)=100,000−50,000200,000(0.15(1+0.15)10(1+0.15)10−1)−10,000(0.15(1+.15)10−1)=1.27

The benefit cost ratio is 1.27. Since the BC value is greater than 1, it is acceptable project.

Answer 7

Chapter 10, Problem 1P

To determine

Calculate the Benefit cos ratio.

Answer 8

Expert Solution & Answer

Explanation of Solution

Time period is denoted by n and the interest is denoted by i. Benefit cost ratio (BC)can be calculated as follows.

BC=Annual receipt−Annual expenseInvestment(i(1+i)n(1+i)n−1)−Salvage value(i(1+i)n−1)=100,000−50,000200,000(0.15(1+0.15)10(1+0.15)10−1)−10,000(0.15(1+.15)10−1)=1.27