Question

10-10. In the development of a publicly owned, commercial waterfront area, three possible independent plans are being considered. Their costs and estimated benefits are as follows: (10.8) PW ($000s) Plan Costs Benefits $123,000 135,000 99,000 $139,000 150,000 114,000 a. Which plan(s) should be adopted, if any, if the controlling board wishes to invest any amount required, provided that the B-C ratio on the required investment is at least 1.0? b. Suppose that 10% of the costs of each plan are reclassified as disbenefits. What percentage change in the B-C ratio of each plan results from the reclassification? c. Comment on why the rank-orderings in (a) are unaffected by the change in (b).

Answer 1

Answer ColculoHon B-C Roto Pul (so00) Pon C Portaudors Ban-B Plan-A Benetts Cast 1,S0,000 1,39,000 89,000 1,35,000 133,00 B-C Roho Benehts Casts 1,५, 0 39,00 123,000 1,35,0u0 I.IS 13 RonR IT ca) Since AIL tua Plon bave B-C Pabho Moe tthon 1 theretor Boord invest in any 6 tha plams ie Plon A or PlanB or mad Plona C. However, Since ta Roho is graoter in Cofe be more preferoble Plon-C, it shouldl Colculohon Parhieulor benoth Plon A 1,39,0o Plan B Plan C 4,14,ouD 423,00 Cost ess lo Rechssifedas Dsbenehits Revised Cost ,35,00 రా (2300 ,10,200 (9,300 89,100 13,500) Qos'e't

Plan C Plan B Plan A B-C Retio Renatits Cost 139,0 89,100 121,SU0 .a8 I33 1.a6 Rank I CNole When lo.tue Costs are Recloshed as disbenehits it taerepe im plies tuot ast are lower by Rovised Cost is alauloted 7 ton betoxt Since there is Constont Reduchion in tua Cost () tha reclassifed andishenetits proposed plans ie lo% ar how theretoe tuo Cast ax nouw 9or a ta Cost wuich was Considered in parto Dua to Such factars Aue RonR -orderings in pot Ca) Pottb) ore Similor (unaffected