Five independent projects consisting of reinforcing dams, levees, and embankment
ID: 381902 • Letter: F
Question
Five independent projects consisting of reinforcing dams, levees, and embankments are available for funding by a certain public agency. The following tabulation shows the equivalent annual benefits and costs for each:
A- What is the rank-ordering of projects from best to worst?
B-If the projects involved intangible benefits that required considerable judgement in assigning their values, would your recommendation be affected?
Annual
Benefits
Annual
Costs
$2,000,000
ProjectAnnual
Benefits
Annual
Costs
A $1,800,000$2,000,000
B $5,600,000 $4,200,000 C $8,400,000 $6,800,000 D $2,600,000 $2,800,000 E $6,600,000 $5,400,000Explanation / Answer
First, we calculate Net Profit and Return on Investment % for each projects:
Net Profit = Annual Benefits - Annual Costs
Return on Investment % = (Net Profit / Annual Costs) * 100
A. Hence, the rank ordering from best to worst will be B-C-E-D-A
B. Since, the amount of net profit in B and C is comparable, we could choose C over B in case of some intangible benefits which may be important otherwise my recommendation would be Project B.
Project Annual Benefits Annual Cost Net Profit ROI % A $1,800,000 $2,000,000 -$200,000 -10% B $5,600,000 $4,200,000 $1,400,000 33% C $8,400,000 $6,800,000 $1,600,000 23.5% D $2,600,000 $2,800,000 -$200,000 -7% E $6,600,000 $5,400,000 $1,200,000 22.22%Related Questions
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