Question

6. There are two potential locations to construct an urgent care walk-in clinic to serve rural residents. Use B/C analysis to determine which location, if any, is better at an interest rate of 8% per year. Location 1 2 Initial Cost, $ 1,200,000 2,000,000 Annual M&O Cost, $/Year 80,000 75,000 Annual Benefits, $/Year 520,000 580,000 Annual Disbenefits, $/Year 90,000 140,000 Site Suitability, Years 10 20

Answer 1

Anguter - e Ble analysis ie, benefit cost analysis gives the ratio of benefits and costs in the same time frame. It helps in determining the economic viability of project. Conventional Ble ratio is PW Benefit - pul iesenefit PW cost - AW Benefit - AW dissenefit AW cost = FW Benefit - FW ais benefit - FW cost Modified Blc ratio is - PW Benefact - PW aisbene fut - PW M50 AW Benefit AW is benefit Awe are Pwa sast Cast Await lost .. = FW Benefit - FW aisbenefit - FW mço FW fishat cost benefits and cost for First calculate the AW of both the locations : Scanned with CamScanner

First, for location 1: AW beretit - A Waisbenefits = 520000 - 90,000 = $430,000 Aw cost = 80,000 +1,200,000 CAIP, 81.,10) = 80,000 +1,200,000 Co.149) = 80,000 +178,800 = $258,800 For location 2: AW benefit - AW.isberectils = 580,000 -140,000 - $440,000 Aw cost = 75,000 + 2,00,(Alp,81.,20) = 75,000 + 2,000,000 (Alp,84., 20) = 75000 + 2,000,000 C0.1018) = 75,000 + 122,160 = $278,600 Scanned with CamScanner

Now, location 2 will be Able - AB has higher cost so it challenger. AC = 440,000 – 430,000 278,600 -258,800 = 10,000 19,800 = O.S.SOSI (8) 0.51. As the value of incremental Ble Patio is less than 1, the increased cost of location 2 is not justified. Hence, location 1 should be preferred. CS Scanned with CamScanner