Question

As part of the rehabilitation of the downtown area of a southern
U.S. city, the Parks and Recreation Department expects to develop
the space below several overpasses into basketball, handball,
miniature golf, and tennis courts. The estimates are initial cost
of $184,000; life of 20 years and, annual M&O cost of $24,000.
The. department expects 22,000 people per year to use the
facilities an average of 2 hours each. The value of the recreation
has been conservatively set at $0.9 per hour. At a discount rate of
8% per year, **What is the B/C ratio for the
project?**

Answer #1

**B/C ratio of the project= 0.92**

**B/ C ratio<1[ not acceptable]**

Calculations------

Benefit cost Ratio= Present value of inflows / present value of outflows

Given-----

Initial cost(outflow)=$184000

life(n)=20 years

Annual M&O cost( outflow) = $24000

Annual inflows=22000*2*0.9=$39600

present value of an annuity of $1 @8% for 20 years=9.818(Annuity table value)

# CALCULATING P.V OF INFLOWS

Annual inflows= 22000*2*0.9=$39600

Discounted value of inflows= 39600* 9.818=$388793

# CALCULATING PRESENT VALUE OF OUTFLOWS

* p.v of Initial cost=184000*1=$184000

* p.v of annual M&O= 24000* 9.818=$235632

P.v of total outflows= 184000+235632=$419632

B/c ratio= 388793/419632=0.92

As B/c ratio <1

so,project is rejected.

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