Question

Use Microsoft Excel formulas to answer the following question:

Q1.A local government is considering promoting tourism in the city. It will cost S5,000 to develop the plan. The anticipated annual benefits and costs are as follows: Annual benefits: Annual support service: Parking lot expansion, S41,350 Increased local income$98,400 and tax collections rest room, patrol car, and street repar If the city government uses a discount rate of 6% and a study period of 5 years, is this tourism project justifiable according to the benefit-cost analysis?

Answer 1

Benefit cost analysis using Annual worth method

Initial cost = 5000$

I = 6% = 0.06

n = 5

AW of initial cost = 5000(A/P,6%,5)

(A/P,6%,5) = (0.06)(1+0.06)⁵/((1+0.06)⁵-1)

(A/P,6%,5) = (0.08)/(0.338) = 0.178

AW of initial cost = 5000*0.178 = 890

Benefit cost ratio = (Annual benefit)/(AW of initial cost+ Annual support service)

BC ratio = 98400/(41350+890)

BC ratio = 2.33

As the ratio is greater than 1 , so the project is profitable.