Question

Question 7 (10 points) The Parks and Recreation Department of Burkett County estimates the initial cost of a river park to be $2,200,000, annual upkeep costs of $120,000, benefits of $320,000 per year, and disbenefits $45,000 per year have been identified. Using a discount rate of 0.05 per year, calculate the modified B/C ratio.

Answer 1

Modified B/C Ratio = (AW of benefits - AW of disbenefits - AW of annual costs) / AW of Initial cost

= (320,000 - 45,000 - 120,000) / [2,200,000 x 0.05**]

= 144,000 / 110,000

= 1.31

**Since project life is not mentioned, an infinite life has been considered, in which case, AW = Given value x Discount rate