The city of Pawnee is considering the addition of a splash fountain to its recreation center....
The city of Pawnee is considering the addition of a splash fountain to its recreation center. The splash fountain will have an initial cost of $500,000. The annual expenses will be $35,000, increasing by 3% per year. The benefits are estimated to be $200,000 per year through increased tourism. The splash fountain has an estimated useful life of 20 years. What is the benefit-cost (B/C) ratio of this project if the city uses a MARR of 3%?
Homework Answers
Pls see table below for calculations. B/C Ratio is 4.59
| Benefit / 1.03^Time | ||||||
| Time | Investment | Annual Benefit | Annual Cost | Net Benefit | Cost | PV |
| 0 | -5,00,000.00 | 5,00,000.00 | ||||
| 1 | 2,00,000.00 | -35,000.00 | 1,65,000.00 | 1,60,194.17 | ||
| 2 | 2,00,000.00 | -36,050.00 | 1,63,950.00 | 1,54,538.60 | ||
| 3 | 2,00,000.00 | -37,131.50 | 1,62,868.50 | 1,49,047.75 | ||
| 4 | 2,00,000.00 | -38,245.45 | 1,61,754.56 | 1,43,716.83 | ||
| 5 | 2,00,000.00 | -39,392.81 | 1,60,607.19 | 1,38,541.17 | ||
| 6 | 2,00,000.00 | -40,574.59 | 1,59,425.41 | 1,33,516.27 | ||
| 7 | 2,00,000.00 | -41,791.83 | 1,58,208.17 | 1,28,637.72 | ||
| 8 | 2,00,000.00 | -43,045.59 | 1,56,954.41 | 1,23,901.26 | ||
| 9 | 2,00,000.00 | -44,336.95 | 1,55,663.05 | 1,19,302.76 | ||
| 10 | 2,00,000.00 | -45,667.06 | 1,54,332.94 | 1,14,838.20 | ||
| 11 | 2,00,000.00 | -47,037.07 | 1,52,962.93 | 1,10,503.67 | ||
| 12 | 2,00,000.00 | -48,448.19 | 1,51,551.81 | 1,06,295.39 | ||
| 13 | 2,00,000.00 | -49,901.63 | 1,50,098.37 | 1,02,209.69 | ||
| 14 | 2,00,000.00 | -51,398.68 | 1,48,601.32 | 98,242.98 | ||
| 15 | 2,00,000.00 | -52,940.64 | 1,47,059.36 | 94,391.81 | ||
| 16 | 2,00,000.00 | -54,528.86 | 1,45,471.14 | 90,652.81 | ||
| 17 | 2,00,000.00 | -56,164.73 | 1,43,835.27 | 87,022.71 | ||
| 18 | 2,00,000.00 | -57,849.67 | 1,42,150.33 | 83,498.34 | ||
| 19 | 2,00,000.00 | -59,585.16 | 1,40,414.84 | 80,076.62 | ||
| 20 | 2,00,000.00 | -61,372.71 | 1,38,627.29 | 76,754.57 | ||
| Total | 5,00,000.00 | 22,95,883.32 | ||||
| B/C Ratio | 4.59 |
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