Benefit-cost ratio and the return on investment

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Reference no: EM131995038

A proposed wind project would require an initial investment of $1.5 million. It is expected to have an annual net benefit of $120,000. The wind project is expected to last for 30 years. Estimate the simple payback period, benefit-cost ratio and the return on Investment. Based on the results, would you go ahead with the project? Assume Discount Rate 8%

SPP = IC/cash flow per period = 1,500,000/120,000 = 12.5years

ROI % = inverse SPP = 100/SPP = 100/12.5 = 8%

How do I estimate Benefit Cost Ratio ? Using PVS/IC

BCR = PVS/IC = B/C

PVS = (AES*Pr – O&M)*UPVF ($)

SPP = IC/AES*Pr

UPVF - uniform present value function based on discount rate

Assume Discount Rate 8%

Assume $0 Operations & Management

Initial cost = 1,500,000 million dollars

30 year duration

Reference no: EM131995038

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