Engineering Economics

Assignment 2-Benefit-Cost Analysis Chapter 8

1. What is the Benefit-Cost ratio? How can it be used in selecting government projects?

2. What are the advantages of applying Benefit Cost analysis?

3. What are the weaknesses of Benefit-Cost analysis?

4. Solve the following:

A city government is considering the building of a new waste water treatment plant. The investment will cost $1.2 million and is expected to have a 25 year useful life, after which it will have a $50,000 salvage value. Its annual benefits are estimated to be $250,000 and annual expenses and operating costs of $100,000. With a discount rate of 6%, what is the Benefit-Cost ratio for this project? Should this project be accepted? Why?