A public project consisting of a construction public ice rink is being considered. project will require...
A public project consisting of a construction public ice rink is being considered. project will require initial construction cost of 1.5 million and subsequest maint with estimated annual cost of 69000. Project is assumed to last 19 years. After project id over , teh facility and land will be sold to private company.for an estimated 301000 The annual benefits to public are estimated 264000 per year. Assuming 7% cost of capital, calculate modified B-C ratio of project. Be careful to use correct formulae for computing b-c ratio
Homework Answers
Benefit – cost ratio = present value of cash benefits / present value of cost
Annual cash inflow = annual benefits – annual cost = 264000-69000 = 195000
|
PV factor |
|||
|
Annual cash inflow |
195000 |
10.33560 |
2015442 |
|
Salvage value |
301000 |
0.27651 |
83230 |
|
Total present value of cash inflows |
$2098672 |
PV of ordinary annuity of $1 @ n=19, i=7% is 10.33560
PV of $1 @ n=19, i=7% is 0.27651
Benefit – cost ratio = 2098672/1500000 = 1.40
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