Question

The city of Columbus hes identified three options for a public recreation area suitable for informal family activities and major organized events. As with most alternatives today, there are benefits, disbenefits, costs, and some savings. These have been estimated with the help of an external planning consultant and are identified in the table below. In each case, these are annualized over a 10-year planning horizon Option 1 Option 3 Option 2 Benefits $595,000 $450,000 $530,000 Disbenefits $58,000 $135,000 $200,000 Costs $240,000 $480,000 $360,000 Savings $23,000 $67,000 $80,000 a. Determine the B/C ratio fors Option 1: Option 2: Option 3: Do all calculations to 5 decimal places and round final answer to 2 decimal places. Tolerance is +/-0.02. Can you tell from these ratios which option should be selected? b. Determine which option should be selected using the incremental B/C ratio. c. Determine which option should be selected using the B-C for each option. d. At what value of Option 2 costs are you indifferent between Option 1 and Option 27 $ round final answer to whole dollar Talarsnea ie cA Do all calculations to 5 decimal places and

Answer 1

cas BC oratio is calculated as: Met benefits Blc - kumovo 70.9875) Netcosts Option 1 BIC= 450,000 - 58,00 - 11.866) = 11.81 240,000 - 23,000.- - 52000. - 135,00 Option 2. Blc= 520000 11.35 - 11.348 360,000 - 67,000 Option 3: BCC = 595,000 - 200,000 = 10.9875) B8 Ccalculate the incremental present worth of benefits (45000. – Shooo) + (520,000 - 135,000)t (sas, 600-200, ove), = 1, 182,000 Incr. present worth of costs ( 2 xu, va – 3,6 ) }(36 v đeo - ( 2 , 1)+(480, 800 40, 4) = 910,000 we see, Inos. BBC ratio – 1182,000 1.2989 alo,oro [option of stood should be selected (highest positive value) (b) (option 1 w Calculate for each. option id; B-C = (uso,ooo – 56,000) – (246,000 - 23,000) = 175,000 option2! B-C = (530,000 - 135,000) – (360,000 -62,000) = 102,000 option 2. B-C = (sasi.ro – 200, ord) - (480, our -80,000) = -5,000 soption & should be selected as its B-C value is highest

d = = cost of option 2 +[CR-), – (R-C),] 360,ovo + [ 10 2your – 175,«vo] - 1287,000