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Proposal by the mayor to construct a recreational facility

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The Townsville City Council is considering a proposal by the mayor to construct a recreational facility at a cost of $1.0 million. The facility is expected to have a useful life of 30 years during which operating costs are expected to average $100,000 per year. It is anticipated that one-time renovations costing $500,000 will be carried out after 18 years. Overall benefits to the community are expected to average $220,000 per year. The facility will have no salvage value. Assuming an interest rate of 5% per year, determine the benefit-cost ratio for the proposed facility. Should the Council approve the proposal?

Reference no: EM131096753

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