Question

A non-profit has begun a new program to help people looking for employment. The CFO has asked you to calculate the Benefit/Cost (B/C) ratio for the program. The first cost of the program is $425,013. The program has annual expenses of $118,454 which are estimated to increase by $19,771 each year. To help fund the program, the non-profit will receive a 5-year grant of $171,566 per year, with the first payment awarded at the end of year 1 and the last payment received at the end of year 5. In year 9, the program anticipates receiving another grant. The second grant will pay the non- profit $308,225 a year for the remainder of the life of the program, with the non-profit receiving the first payment at the end of year 9. The program will have a lifespan of 13 years. Use a nominal annual interest rate of 7%, compounded annually to make the B/C ratio calculation. Enter your answer as: 1.23 (Calculate to 2 decimal places only.)

Answer 1

PV factor=	1/(1+r)^n
	0	1	2	3	4	5	6	7	8	9	10	11	12	13	Total
PV Factor	1.0000	0.9346	0.8734	0.8163	0.7629	0.7130	0.6663	0.6227	0.5820	0.5439	0.5083	0.4751	0.4440	0.4150
Cost	425013	118454	138225	157996	177767	197538	217309	237080	256851	276622	296393	316164	335935	355706
Grant		171566	171566	171566	171566	171566				308225	308225	308225	308225	308225
PV of Cost	425013.00	110704.67	120731.07	128971.80	135617.59	140841.86	144802.16	147641.51	149489.62	150464.04	150671.17	150207.24	149159.16	147605.34	$ 2,251,920.24
PV of Grant	0.00	160342.06	149852.39	140048.96	130886.88	122324.19	0.00	0.00	0.00	167653.98	156685.96	146435.48	136855.59	127902.42	$ 1,438,987.89
B/C ratio=	PV of Grant/ PV of cost
B/C ratio=	0.64