Question

. A project’s annual benefit is $50,000 and its service life is 10 years. If the initial construction cost is $300,000 what is the minimum interest rate for which this project has a benefit-cost ratio greater than 1.

Answer 1

	i	10.50%
Y	Cost	Discounted Cost	Benefit	Discounted Benefit
0	300000	300000
1			50000	45249
2			50000	40949
3			50000	37058
4			50000	33537
5			50000	30350
6			50000	27466
7			50000	24856
8			50000	22494
9			50000	20357
10			50000	18422
	Total	300000		300739
	B/C	1.0

So, looking at the above values, a minimum of 10.5 percent interest rate is required to achieve the B:C ratio of greater than 1