Q1 In a modified B/C ratio: a. Disbenefits and M&O costs are subtracted from ben

Question

Q1 In a modified B/C ratio:

a. Disbenefits and M&O costs are subtracted from benefits in the numerator

b. Disbenefits are subtracted from benefits, and M&O are added to cost in the denominator

c. Disbenefits are added to costs, and M&O costs are subtracted from benefits

d.M&O receives the same treatment as the salvage value

Q2. To convert constant-value dollars into inflated dollars, it is necessary to take CV dollars and:

a. Divide by (1 + if) n

b. Divide by (1 + f ) n

c. Divide by (1 + i) n

d. Multiply by (1 + f )n

please explain me why you chose the answer.

Explanation / Answer

1. a. Disbenefits and M&O costs are subtracted from benefits in the numerator

The conventional benefit-cost ratio has net benefits to the users in the numerator and cost to the sponsor in the denominator. The modified B-C ratio takes the project operating and maintenance costs paid by the sponsor, and subtracts these from the net benefits to the users. This quantity is all in the numerator. These leaves only the projects initial costs in the denominator.

2. d. Multiply by (1 + f )n

As Constant-value dollars = future dollars/(1+ f)n =   then-current dollars/(1+ f)n

Inflated or Future Dollar = (1+ f)n* Constant-value dollars   

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