Question

Exercise 2: Choosing Among Projects (40 points) Three mutually exclusive projects are being considered for a remote river valley: Project R, a recreational facility, has estimated benefits of $10 million and costs of $8 million; project F, a forest preserve with some recreational facilities, has estimated benefits of $13 million and costs of $10 million; project W. a wilderness area with restricted public access, has estimated benefits of $5 million and costs of $1 million. In addition, a road could be built for a cost of $4 million that would increase the benefits of project R by $8 million, increase the benefits of project F by $5 million, and reduce the benefits of project W by $1 million. Even in the absence of any of the other projects, the road has estimated benefits of $2 million (in the presence of any other project, the road alone benefit is included on the other project's benefit increase). (a) (5 pts) State all possible alternatives to the status quo. I.e. all the projects that the decision maker should consider. (b) (10 pts) Calculate the benefit-cost ratio and net benefits for each possible alternative to the status quo.

Answer 1

(The three projects which are available are R ,F ,W

Benefit cost ratio = program Benefits/Program cost

if Benefit cost Ratio is greater than 1 , then that option is called feasibile option

Projects	Benefits	Cost	Benefit cost ratio
R	10	8	1.25
F	13	10	1.3
W	5	1	5

if road is made by spending $4 million and individual benfits to projects

projects	Benefits	Benefits of road	total	total cost	Benefit cost ratio
R	10	8	18	12	1.5
F	13	5	18	14	1.28
w	5	-1	4	5	0.8

(a)if road is not bulit then all three projects are feasibile for company as the benefits are more than the cost in all the projects , the maximum benefit is generated from project W , second best is F and 3rd is R

And if road is built the maximum benfits which will genrating is Project R and project F

Project W cannot be considered if road is constructed.

(B)

Benefit cost ratio = program Benefits/Program cost

if Benefit cost Ratio is greater than 1 , then that opt

Projects	Benefits	Cost	Benefit cost ratio
R	10	8	1.25
F	13	10	1.3
W	5	1	5

project W Is the most Feasibile option

if road is made by spending $4 million and individual benfits to projects

projects	Benefits	Benefits of road	total	total cost	Benefit cost ratio
R	10	8	18	12	1.5
F	13	5	18	14	1.28
w	5	-1	4	5	0.8

(C) if project is to be selected as per the Cba then Project W should we choosen as cost is just $1 Million and if road is build then also cost of project is least of W i.e 5 million

and as per Benefit cost ratio Project W , and if road is build then Project R

(D) if we have budget of 12 million as per Cba decisioon project that can be benefical will be project W & R which add total cost of 11 million

and if road is built then alternative which are available will Project W and other option which can be considered can be project R