Two plans have been proposed for a high speed passenger rail line between Cincin

Question

Two plans have been proposed for a high speed passenger rail line between Cincinnati and Cleveland. The plans are summarized in the table below.   Costs and benefits are in millions of dol­lars.   Use benefit-cost ratio analysis with an interest rate of 10%

Plan A        Plan B

Eco. Life (Years)      40              20

Salvage Value          $15            $12

Annual Benefits        $ 25        $22

Annual M & O Cost   $ 5         $3

Initial Cost              $ 300      $160

Use increment analysis, Use Net Present Worth and Annual Worth to determine which, if either, of the plans should be accepted. Compare between Net Present Worth and Annual Worth in the analysis of benefit- cost ratio.

Please read the questions carefully. Please draw the cash flow diagrams and explain the steps that you are going to approach to solve the problems then solve the problem. Show the details in solving the problems.

Use equation for example; P= A (P/A,i,n) + G(P/G,i,n), do not use other equations or exel to solve it. Thank you

Q5) Solve the Following Problemi Two plans have been proposed for a high speed passenger rail line between Cincinnati and Cleveland. The plans are summarized in the table below. Costs and benefits are in millions of dol- lars. Use benefit-cost ratio analysis with an interest rate of 10% Cieve asd ythefit aos ara so manarzd ih the iable below of oss and benefits are in millions of Plan APlan B Eco. Life (Years)4020 Salvage Value $15 $121 Annual Benefits $25 $221 Annual M & O Cost $5 $3 T Initial Cost $300 $160 Use increment analysis, Use Net Present Worth and Annual Worth to determine which, if either, of the plans should be accepted. Compare between Net Present Worth and Annual Worth in the or the plars should besacaepied. Compare between Net Present Worth and Amnual Worth in the analysis of benefit- cost ratio.

Explanation / Answer

Net Present worth

                             Plan A         Plan B

Eco. Life (Years)   40                20

Salvage Value           $15         $12

Annual Benefits      $ 25       $22

Annual M & O Cost        $ 5        $3

Initial Cost                      $ 300        $160

Interest rate      ---- 10%

Given formula   P= A (P/A,i,n) + G(P/G,i,n)

Plan A =>    P= 300 * 9.779 + 20 * 88.953 = 2933.7+1779.06= 4712.76

Plan B =>   P = 160* 8.514+ 19* 55.407 = 1362.24 + 1052.733 = 2414.973

Plan A is better

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