Question

Problem 09.020 Benefit/Cost Analysis of a Single Project A consultant, after 3 months of work, reported that the modified B/C ratio for a city owned hospital heliport project is 1.3. If the initial cost is $1.3 million and the annual benefits are $150,000, what is the amount of the annual M&O costs used in the calculation? The report stated that a discount rate of 11% per year and an estimated life of 45 years were used. The M&O cost is $ 1725900 O

Answer 1

ANSWER:

I = 11% AND N = 45

Total benefits = annual benefit - annual m and o cost = 150,000 - annual m and o cost

Total costs = initial cost(a/p,i,n) = 1,300,000(a/p,11%,45) = 1,300,000 * 0.1110 = 144,300

modified b/c ratio = total benefits / total costs

1.3 = (150,000 - annual m and o cost) / 144,300

1.3 * 144,300 = 150,000 - annual m and o cost

187,590 = 150,000 - annual m and o cost

annual m and o cost = 150,000 - 187,590

annual m and o cost = -37,590

so the annual m and o cost is $37,590