The estimated annual cash flows for a proposed municipal government project are costs of $830,000 per year, benefits of...
The estimated annual cash flows for a proposed municipal government project are costs of $830,000 per year, benefits of $910,000 per year, and disbenefits of $280,000 per year. Calculate the conventional B/C ratio at an interest rate of 9% per year, and determine if it is economically justified.
The B/C ratio is .
The project is economically is justified or nonjustified
Homework Answers
Total Benefits = ($910000 - $280000) / Discount factor ie. 9% = $7,000,000
Total costs = $830000 / Discount factor ie. 9% = $9,222,222
So, Conventional B/C ratio = Total Benefits / Total Costs = $7,000,000 / $9,222,222 = 0.76 < 1
The project is not economically justified being Conventional B/C ratio less than 1.
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