Question

Benefit-Cost Analysis Table Road Project Analysis

Government XYZ is considering the addition of a tool road segment to the regional road system. The projected costs and benefits for it has been estimated and converted into monetary units. The resulting data is outlined in the Table below. Furthermore, the discount rate has been determined to be 7% based on the entity’s weighted average cost of capital (WACC). Based on a benefit-cost analysis, determine whether this “pilot project” will provide a net contribution to society, based on the data provided (i.e., will the NPV be positive?). To complete this assignment, complete the following steps (make sure to use the discount factor table when completing this assignment):

1. Discount each inflows and enter them into the table, below, rounded off to the nearest $1.00.
2. Add the discounted inflow values together and enter the sum of the PVs into the table.
3. Discount each outflows and enter them into the table, below, rounded off to the nearest $1.00.
4. Add the discounted outflow values together and enter the sum of the PVs into the table.
5. Determine the Net Present Value (NPV) (i.e., subtract sum of the present values of outflows/costs from the sum of the discounted values of the inflows/benefits

Discount periods		DF			Discounted value of outflows/costs		Discounted values of inflows/benefits
0
1
2
3
4
5
6
Sum of PVs
Time/number of discount periods	Description of Cash Flow			Projected cash outflows		Description of Cash Flows			Projected inflows
0	Initial construction outlay			$11,000,000.00		Tool revenue			0
1				0		Tool revenue			$1,000,000.00
2	Operating outlays			$400,000.00		Tool revenue			$2,000,000.00
3				0		Tool revenue			$2,000,000.00
4	Operating outlays			$460,000.00		Tool revenue			$2,500,000.00
5				0		Tool revenue			$2,500,000.00
6	Operating outlays			$470,000.00		Tool revenue +Salvage			$3,000,000.00

Please also answer the following questions in the Lesson 6 Benefit-Cost Analysis Assessment:

• What is the Net Present Value that results from this project, rounded off to the nearest $1.00?

Answer:

• Will this project provide a net contribution to society? Yes or no?

Answer:

Answer 1

A B C D E F 1 Discount periods Cash Inflows Discounted values of inflows/benefits Cash Outflows Discounted value of outflows/costs 1,10,00,000 DF 01.0000 1,10,00,000 $ 1 0.9346 $ 2 0.8734 $ 3 0.863 $ 4 0.7629 $ 5 0.7130 $ 6 0.6663 $ 2 10,00,000 S 3,49,375 $ 20,00,000 | $ $20,00,000 $ 3,50,932 $ 25,00,000 | $ 25,00,000 $ 3,13,181 30,00,000 $ 9,34,579 3 4,00,000 $ 17,46,877 16,32,596 19,07,238 17,82,465 19,99,027 1,00,02,783 4 5 4,60,000 $ 6 $ 7 4,70,000 8 1,20,13,488 Sum of PVs 9 10

Discourt nenpde Cash Qrtic iscounted value of outlows/costs Cash Infiows Discounted valyes of inflowshenetita 2500309 8885 n

a. NPV= -$2010705 (10002783 - 12013488)

b. No the project results in negative NPV it doesn't provide contribution to the society.