Question

disbenefits every year with a life of 5 years. Project 2 costs E initially, cost Fevery year, generates G benefits every year and H disbenefits every year with a life of 6 years. Project 3 costs I initially, costs J every year, generates K benefits every year and L disbenefits every year with a life of 10 years. Use an annual rate of R to conduct Incremental B/C ratio analyses to select one of the alternatives. "Do Nothing" is not B = A= E = 128 160 340 F= 60 C = 60 D = 10 62 G= 69 H= 15 50 K = 83 L= Have to Use Conventional B/C Ratio Analysis J = 20 Final Selection

Answer 1

Conventional B/C ratio is used as it is written in the question below:

Project 1:

AW of net costs = 128(A/P, 12%, 5) + 60

                          = 128(0.2774) + 60

                          = 35.51 + 60

                          = $95.51

AW of net benefits = 60 - 10 = $50

B/C ratio = AW of net benefits / AW of net costs

               = $50 / $95.51

               = 0.52

Project 2:

AW of net costs = 160(A/P, 12%, 6) + 62

                          = 160(0.2432) + 62

                          = 38.91 + 62

                          = $100.91

AW of net benefits = 69 - 15 = $54

B/C ratio = AW of net benefits / AW of net costs

               = $54 / $100.91

               = 0.53

Project 3:

AW of net costs = 340(A/P, 12%, 10) + 50

                          = 340(0.1770) + 50

                          = 60.18 + 50

                          = $110.18

AW of net benefits = 83 - 20 = $63

B/C ratio = AW of net benefits / AW of net costs

               = $63 / $110.18

               = 0.57

Fimal selection = Project 3