Question 7 15 points Save Answer The Asch Foundation expects to award $7,500.000

Question

Question 7 15 points Save Answer The Asch Foundation expects to award $7,500.000 in grants to public high schools to develop new ways to teach students the fundamentals of engineering that prepare students for university level materials. The grants will extend over a 10 year period and will create and estimated savings of $1,500.000 In faculty salaries The Foundation uses a rate of return of 6% per year on grant awards Operating expenses wil be $200.000 per year Use the B C method to determine if the grant program is sconomicaly justified. What is the B'C Ratio? Ansxxx

Explanation / Answer

B/C Ratio = Present Worth (PW) of benefits / PW of costs

= PW of annual savings / (Initial grant + PW of operating expense)

PW of benefits ($) = 1,500,000 x P/A(6%, 10) = 1,500,000 x 7.3601 = 11,040,150

PW of operating expense ($) = 200,000 x P/A(6%, 10) = 200,000 x 7.3601 = 1,472,020

B/C Ratio = $11,040,150 / $(7,500,000 + 1,472,020) = 11,040,150 / 8,972,020 = 1.23

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