Calculate the Benefit-Cost Ratio for Municipal Government Project
With interest at 10%, the benefit-cost ratio for this municipal government project is most nearly:
Initial cost $200,000
Additional costs at end of years 1 & 2 $30,000/yr
Benefits at end of years 1 & 2 $0
Annual benefits from year's 3 to 10 $90,000/yr
Solution:
PW Cost = $200,000 + $30,000 (P/A, 10%, 2)
= $200,000 + $30,000 (1.736)
= $252,080
![486_Calculate Benefit Cost Ratio for Government Project.png](https://www.expertsmind.com/CMSImages/486_Calculate%20Benefit%20Cost%20Ratio%20for%20Government%20Project.png)
PW Benefits = $90,000 (P/A, 10%, 8) (P/F, 10%, 2)
= $90,000 (5.335) (0.8264)
= $396,800
B/C = $396,800/$252,080 = 1.574