Question

A project for erection a park with the following expected cost and benefits :

-First cost of 5250000 L.E

-Annual operating cost of 1800000 L.E for the first year ; then it increased by 300000 L.E per year up to year 5 , and after that it remain constant at 3000000 L.E /year .

-The expected costs for improving the park will be 90000 L.E / year for the first five years .

-The expected profits will be 1650000 L.E in the first year , then it increased by 450000 L.E /year up to 8 years , after which the net profit will remain the same .

-The interest rate is equal to 6% per year

It is required to take a decision for the economic acceptably of this park using:

a. NPV method

b. Benefit/cost ratio method

c. Annual worth analysis

d. Desired Payback period must be not more than ten years

Answer 1

Based on the given data, pls find below workings;
- Assumption: The life of the park is not mentioned in the question;Hence, I have assumed the life as 20 years and calculations are done accordinlgy;

The Payback period is more than 10 years ; It is 10.4 years;

NOTE: If you have the details on the life of the asset, pls let me know in the comments ; Accordingly, the solution can be revised;