Calculate the Modified B/C ratio for the estimates shown in the table below at a

ID: 1120287 • Letter: C

Question

Calculate the Modified B/C ratio for the estimates shown in the table below at a discount rate of 15% per year.

4,800,000

65,000

1,200,000

300,000

**The answers presented below were calculated using the appropriate factors from interest tables including all their decimal places**

Question 13 options:

Modified B/C= 3.69

Modified B/C= 1.01

Modified B/C= 5.22

Modified B/C= 2.10

PW of benefits, $

4,800,000

AW of disbenefits, $/year

65,000

First cost, $

1,200,000

M&O costs, $/year

300,000

Life of the project, years

Modified B/C is computed as

B/C = PW of benefits - PW of costs - PW of dis benefits / Initial investment - PW of salvage value

= [(4,800,000 - 300,000(P/A, 15%, 20) - 65,000(P/A, 15%, 20)]/1,200,000

= (4,800,000 - (300,000 + 65,000)*6.2593)/1,200,000

= 2.10

Hence 2.10 is the closest B/C ratio

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