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Three projects are available for a government agency. The estimated costs associated with each alternative are given below. Assume a project life of 20 years,
Three projects are available for a government agency. The estimated costs associated with each alternative are given below. Assume a project life of 20 years, and an interest rate of 7% per year. BENEFIT-COST ANALYSIS Project A Project B Project C Incremental C - A Incremental AB-C $1,200,000 $1,450,000 $1,300,000 $100,000 $150,000 Initial cost, $ Annual benefits, $/year $450,000 $535,000 $490,000 $40,000 $45,000 $280,000 $345,000 $310,000 $30,000 $35,000 Annual disbenefits, $/yea B/C ratio 1.50 ? 1.47 1.06 0.71 25. Calculate the benefit-cost ratio (B/C) for Project B to the nearest hundredth. 26. Choose the statement that best describes which alternative should be selected, using the B/C ratio method. (a) Choose Project A because it has the lowest initial cost. (b) Choose Project B because it has the highest annual benefits. (c) Choose Project A because it has the highest B/C ratio. (d) Choose Project B because it has the greatest value of benefits minus disbenefits. (e) Choose Project C because it is the largest investment with an incremental B/C ratio greater than 1
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