Question

Problem (2): A city is considering upgrading a dump area (landfill) to meet the environment standards. The project planning horizon is 12 years and MARR is 12%. The following data are available for this project: First cost $650,000 Annual Net benefits Operating & Maintenance costs (O&M) Annual Savings (generated from collecting dump fees from households & businesses) $120,000 $35,000 in the first year, increasing by $8,000 each year thereafter $100,000 a) Compute the benefit-cost ratio (BCR) for this project. Is the project economically viable? b) If zero dump fees are collected, would the project be economically viable using BCR?

Answer 1

a) In order to find out the benefit-cost ratio, we need to estimate the Annual worth of benefits and Annual worth of costs.

Benefit-cost ratio = Annual worth of benefits / Annual worth of costs

Annual worth of benefits = 120000 +100000

Annual worth of benefits = $220000

Annual worth of costs = 650000(A/P,i,n) + [35000 + 8000(A/G,i,n)]

Annual worth of costs = 650000(A/P,12%,12) + [35000 + 8000(A/G,12%,12)]

Using DCIF Tables

Annual worth of costs = 650000(0.1614) + [35000 + 8000(4.1897)]

Annual worth of costs = $173427.6

Benefit-cost ratio = Annual worth of benefits / Annual worth of costs

Benefit-cost ratio = 220000/173427.6

Benefit-cost ratio = 1.27 [which is greater than 1. hence the project is economically viable]

b) If Zero dump fees are collected than;

Annual worth of benefits = $120000

Annual worth of costs = $173427.6

Benefit-cost ratio = Annual worth of benefits / Annual worth of costs

Benefit-cost ratio = 120000/173427.6

Benefit-cost ratio = 0.692 [which is lesser than 1. hence the project is economically not viable]