Financial Analsys
Question on Benefits and Costs
A state legislature has appropriated $15 million to purchase and prepare the property for several new state parks. Alternatives have been suggested and forecasts for acquisition, preparation and annual operating costs have been estimated and listed below for each alternative. Also listed are the forecasted annual benefits to the community in dollars.
Annual Benefits are to be computed as Net Benefits or Annual Benefits minus Annual Operating Costs. The investment is the sum of Acquisition costs and Preparation Costs.
The planning time horizon should consider the acquisition and preparation as being done in the current year and then for 20 years thereafter. The value of the park at the end of the 20 year time horizon (salvage value) can be ignored. (all numbers are in millions of dollars) Use an annual discount rate of 7% in the evaluation. Any funds left in the budget after the acquisition and preparation phase can be used for additional enhancements to the parks.
a. Using a B-C method for evaluations, determine which ones should be chosen.
b. Using a B/C method for evaluations, determine which ones should be chosen.
c. What non-financial considerations might be important?
|Site |Acquisition Cost |Preparation Cost |Annual Operating Cost|Annual Benefits |
|1 |$1.0 |$3.2 |$1.0 |$3.0 |
|2 |$2.2 |$2.3 |$1.2 |$2.5 |
|3 |$1.4 |$0.8 |$0.9 |$2.0 |
|4 |$0.9 |$0.7 |$1.4 |$3.2 |
|5 |$3.4 |$3.1 |$1.0 |$1.0 |
|6 |$2.6 |$1.4 |$0.9 |$1.4 |
|7 |$1.4
A state legislature has appropriated $15 million to purchase and prepare the property for several new state parks. Alternatives have been suggested and forecasts for acquisition, preparation and annual operating costs have been estimated and listed below for each alternative. Also listed are the forecasted annual benefits to the community in dollars.
Annual Benefits are to be computed as Net Benefits or Annual Benefits minus Annual Operating Costs. The investment is the sum of Acquisition costs and Preparation Costs.
The planning time horizon should consider the acquisition and preparation as being done in the current year and then for 20 years thereafter. The value of the park at the end of the 20 year time horizon (salvage value) can be ignored. (all numbers are in millions of dollars) Use an annual discount rate of 7% in the evaluation. Any funds left in the budget after the acquisition and preparation phase can be used for additional enhancements to the parks.
a. Using a B-C method for evaluations, determine which ones should be chosen.
b. Using a B/C method for evaluations, determine which ones should be chosen.
c. What non-financial considerations might be important?
|Site |Acquisition Cost |Preparation Cost |Annual Operating Cost|Annual Benefits |
|1 |$1.0 |$3.2 |$1.0 |$3.0 |
|2 |$2.2 |$2.3 |$1.2 |$2.5 |
|3 |$1.4 |$0.8 |$0.9 |$2.0 |
|4 |$0.9 |$0.7 |$1.4 |$3.2 |
|5 |$3.4 |$3.1 |$1.0 |$1.0 |
|6 |$2.6 |$1.4 |$0.9 |$1.4 |
|7 |$1.4