For a project being considered by a city in Alabama, the following cost data is available. Determine both the modified and conventional B/C ratios.
Initial cost = $10 million.
O & M cost / year = $450,000
Estimated annual benefit = $850,000
Life = 25 Years
Salvage value = $1 million
MARR = 6%

Question

Quizplus · Accepted Answer

Modified B/C: 0.535
EUAC of initial costs = $10M (A/P, 6%, 25)
= 10M (0.0782) = $782,000
EUAB = $850,000 + 1M (A/F, 6%, 25)
= 850,000 + 1M (0.0182) = $868,200
Conventional B/C = 868,200/ (782,000 + 450,000) = 0.705
Modified B/C = (868,200 - 450,000)/ (782,000) = 0.535

For a Project Being Considered by a City in Alabama