Question

Complete the CBA in the table below. Wetland Restoration Project: (Discount Factor = 5%) Year =...

Complete the CBA in the table below.

Wetland Restoration Project: (Discount Factor = 5%)

Year = . 0 . 1 . 2 .   3 .    4 . 5

Benefits . 0 . 0 . 0 . $10000 . $12500 . $12500

Disc Factor

PV Benefits

Cost . $25,000 7500 . 500 . 500 . 500 . 500

PV Cost

a. Should the investment be made?

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Answer #1

B/C = Net PV of Benefit/Net PV of Costs

year 0 1 2 3 4 5
Benefits 0 0 0 10000 12500 12500
Disc Factor 1 0.952381 0.907029 0.863838 0.822702 0.783526
PV Benefits 0.00 0.00 0.00 8,638.38 10,283.78 9,794.08
Cost 25000 7500 500 500 500 500
PV Cost 25,000.00    7,142.86      453.51      431.92      411.35      391.76
Net PV of benefit 28,716.23
Net PV of costs 33,831.41
B/C ratio 0.8488

This investment should not be made because B/C is less than 1

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