Question

The Parks and Recreation Department of Burkett County estimates that the initial cost of a “barebones” permanent river park will be $2.3 million. Annual upkeep costs are estimated at $120,000. Benefits of $340,000 per year and disbenefits of $40,000 per year have also been identified. Using a discount rate
of 6% per year, calculate (a) the conventional B/C ratio and (b) the modified B/C ratio.

Answer 1

(1) PW of cost = $1000

PW of benefits$= 300(P/A, 6\%,5) = 300\times4.212 = 1263.6$

B/C ratio = 1.263

(2) PW of cost = $1000

$PW of benefits = 500(P/A, 6\%, 5) - 50(P/G, 6\%,5) = 500x4.212 - 50 x 7.934 = 1709.3$