Question

Please provide a Cash Flow Diagram with the solution.

(25 Pts.) 4. The fire chief of a small sized city has estimated that the initial cost of a new fire station will be $4 million. He also estimated that the annual upkeep costs at $300,000 per year. The positive impact on the community in receiving a more rapid response to fires is $550,000 per year. A negative impact to the businesses adjacent to the new fire house is projected to be $90,000 per year. Perform a Standard (Conventional) B/C ratio analysis using an indefinite study period and an interest rate of 4% per year to determine whether the fire house should be built or not.

Answer 1

Costs - Cash flows 4000 390000 390.000 39000 390000 Total cost each year upkeep cast negative impact on community I Present value of costs @ 4% per year Pu = 4000000 + 390000 + 390000 + 390000 (1+0.04) (1+0.04)2 (1+004} Cusins berbentual annuity SUOooooo + 390.000 0.04 Benefits - Year o 1 Case flouso 55000 2 55000 3 552000 4 550000 Present value of benefits @ 4.% per year : 550100 + 55000 (1+0.ou) (1+004). + 55000 + (1+0.09} (perfetual annarty zimula) Qmn 0.04 - 550000 Pvz = $13750000

Benefat cost estis : 13250000 -1 13750000 As benefit to cost satio is 1, thus, the fire house should be built. Hope Please Thank you found give it you this answer helpful a thumbs up