Question

Answer the question. The Steuben County school district is considering a proposal to upgrade landscaping on the school properties it operates. The time period for the project, once it begins, is assumed to be 20 years, and the school district has determined 7% discount rate to be appropriate for this type of project. Based on the data below.compute the conventional B-C ratio for the project, using the present worth method. Should the proposal be accepted? Why? The initial cost of purchasing and planting trees and shrubs is expected to be $200,000. Annual maintenance cost is expected to start at $10,000 in year 1, and then increase by $1,000 each following year. The benefits to the community from the improved landscaping are estimated to be $15,000 a year during the first 10 years, and $30,000 a year during years 11-20. Assume no salvage value and no other additional cash flows at the end of the project in 20 years from the start. 1 iHBI D = Sex

please solve in word sheet instead of excel

Answer 1

The cash flow of benefits are given as: Year 2 15000 9 15000 5 15000 10 15000 11 30000 7 15000 12 30000 13 30000 14 30000 15 30000 16 30000 17 30000 18 30000 19 30000 15000 20 30000 Benefits 15000 15000 15000 15000 The PV of benefits at 7% discount rate is given below as: PV = 15000/1.07 + 15000/1.07^2 +.......+ 15000/1.07410 + 30000/1.07411 + ......+ 30000/1.07420 PV = 212,466.70 The cash flow of costs are given as: Year Costs 1 10000 2 11000 3 12000 4 13000 5 14000 6 15000 7 15000 8 17000 9 18000 10 19000 11 20000 12 21000 13 22000 14 23000 15 24000 16 25000 17 26000 18 27000 19 28000 20 29000 The PV of costs at 7% discount rate is given below as: PV = 10000/1.07 +11000/1.07^2 +.......+ 19000/1.07410 + 20000/1.07^11 + ......+ 29000/1.07120 PV = 183,449.20 Initial costs 200,000.00 Total PV of costs 383,449.20 B-C ratio 0.55 Since B-C ratio is less than 1, project should not be accepted