Question

ABS mall is considering building a new parking lot. The land will cost $25,000 and the construction cost of the lot is estimated to be $150,000. Each year costs associated with the lot are estimated to be $17,500. The income from the lot is estimated to be $18,000 the first year and increase by $3,500 each year for the twelve year expected life of the lot. Determine the B/C ratio if ABS mall uses a cost of money of 4%(Use conventional)

Answer 1

Ans: 0.9852 or 0.99

Explanation:

Initial cost ( P ) = $25,000 + $150,000 =$175,000

Annual cost ( A ) = $17,500

Annual worth of cost = P ( A/P , i ,n ) + A

= $175,000 ( A/P , 4% , 12) + $17,500

= $175,00 * (0.1066 )+ $17,500

= $18655 + $17,500

= $36155

Equal Annual Benefits = A1 + G ( A/ G , i , n )

= $18,000 + $3,500 ( A/ G , 4% , 12)

= $18,000 + $3,500 ( 5.0343 )

= $18,000 + $17620.05

= $35620.05 or $35620

Conventional B/C ratio = Annual worth Benefits / Annual worth costs

= 35620 / 36155

= 0.9852 or 0.99