Question

Use Scenario 1 to answer questions 1A and 1B (2-3 below).

Scenario 1: Traffic congestion on Westchester Boulevard must be addressed. Adding middle-turn lanes will cost $15.3 million (today) with an annual benefit from reduced congestion of $2.4 million (at the end of each year). The plan is being evaluated at a MARR of 9% over the next 18 years.

1A. Calculate the "B" for the B/C ratio (i.e. calculate the numerator for the B/C ratio). (note: enter your answer in millions of dollars; do not include dollar signs, percentage signs, or spaces).

1B. Calculate the "C" for the B/C ratio (i.e. calculate the denominator for the B/C ratio). (note: enter your answer in millions of dollars; do not include dollar signs, percentage signs, or spaces).

Answer 1

As per the given information

Initial cost = 15.3 million

Annual benefits = 2.4 million

MARR = 9%

Life (study period) = 18 years

Using the PRESENT WORTH Method

1A. Calculate B or Benefits

Calculate the PW of benefits

PW = 2.4 million (P/A, 9%, 18)

PW = 2.4 million (8.75563) = 21.01 million

1B. Calculate C or Cost

Initial Cost = 15.3 million

Benefit cost Ratio = PW of Benefits / PW of Costs

Benefit cost ratio = 21.01 million / 15.3 million = 1.37

Benefit cost ratio is greater than 1, so select the Project.