The Hawaii Department of Transportation has planned a bypass loop that is expected to cost $9,000,000 and save motorists $820,000 per year in gasoline and other automobile-related expenses. However, local businesses will suffer sales losses estimated at $135,000 each year. (a) Calculate the conventional B/C ratio using a discount rate of 6% per year and a 20-year study period. (b) Is the project economically justified if disbenefits are considered? If disbenefits are not considered?
The Hawaii Department of Transportation has planned a bypass loop that is expected to cost $9,000,000 and save motorists $820,000 per year in gasoline and other automobile-related expenses. However, local businesses will suffer sales losses estimated at $135,000 each year. (a) Calculate the conventional B/C ratio using a discount rate of 6% per year and a 20-year study period. (b) Is the project economically justified if disbenefits are considered? If disbenefits are not considered?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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The Hawaii Department of Transportation has planned a bypass loop that is expected to cost $9,000,000 and save motorists $820,000 per year in gasoline and other automobile-related expenses. However, local businesses will suffer sales losses estimated at $135,000 each year. (a) Calculate the conventional B/C ratio using a discount rate of 6% per year and a 20-year study period. (b) Is the project economically justified if disbenefits are considered? If disbenefits are not considered?
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