Deck 16: Economic Analysis in the Public Sector

Question 1

A public sector project will have the following cash flows.
Annual benefits = $900,000
Expected annual dis-benefits (quantifiable) = $50,000
Initial Cost = $10M
Yearly maintained cost = $ 80,000.
Life = 50 years.
If MARR is 7%, what is the modified B/C ratio for this project?

A) 1.056
B) 1.053
C) 1.058
D) 1.062

Answer 1

1.062

Question 2

A small town is considering two potential alternatives for a garbage collection system. The following cost data has been compiled. If the interest rate is 6%, Compute the ?B /?C ratio.
$$\begin{array} { | l | c | c | } \hline \text { Year } & \text { System A } & \text { System B } \\\hline 0 & - \$ 250,000 & - \$ 375,000 \\\hline 1 - 30 & 20,000 & 32,000 \\\hline 30 & 40,000 & 50,000 \\\hline\end{array}$$

A) 0.96
B) 1.09
C) 2.27
D) 1.34

Answer 2

1.34

Question 3

Case Study 16
A project has the following cost and benefit data.
Initial Cost = $15M
Annual O&M Cost = $500K
Annual Benefit = $4M
The life has the following Probability distribution.
$$\begin{array} { l l } \text { Life } & \text { Probability } \\7 & 0.20 \\8 & 0.50 \\9 & 0.30\end{array}$$ MARR = 8%

-Compute the conventional B/C ratio for a life of 7 years.

A) 1.290
B) 1.183
C) 1.286
D) 1.379

Answer 3

1.183

Question 4

Case Study 16
A project has the following cost and benefit data.
Initial Cost = $15M
Annual O&M Cost = $500K
Annual Benefit = $4M
The life has the following Probability distribution.
$$\begin{array} { l l } \text { Life } & \text { Probability } \\7 & 0.20 \\8 & 0.50 \\9 & 0.30\end{array}$$ MARR = 8%

-Compute the conventional B/C ratio for a life of 8 years.

A) 1.290
B) 1.183
C) 1.286
D) 1.379

Question 5

Case Study 16
A project has the following cost and benefit data.
Initial Cost = $15M
Annual O&M Cost = $500K
Annual Benefit = $4M
The life has the following Probability distribution.
$$\begin{array} { l l } \text { Life } & \text { Probability } \\7 & 0.20 \\8 & 0.50 \\9 & 0.30\end{array}$$ MARR = 8%

-Compute the conventional B/C ratio for a life of 9 years.

A) 1.290
B) 1.183
C) 1.286
D) 1.379

Question 6

Case Study 16
A project has the following cost and benefit data.
Initial Cost = $15M
Annual O&M Cost = $500K
Annual Benefit = $4M
The life has the following Probability distribution.
$$\begin{array} { l l } \text { Life } & \text { Probability } \\7 & 0.20 \\8 & 0.50 \\9 & 0.30\end{array}$$ MARR = 8%

-Compute the conventional B/C ratio using the expected EUAC.

A) 1.290
B) 1.183
C) 1.286
D) 1.379

Question 7

For a project being considered by a city in Alabama, the following cost data is available. Determine both the modified and conventional B/C ratios.
Initial cost = $10 million.
O & M cost / year = $450,000
Estimated annual benefit = $850,000
Life = 25 Years
Salvage value = $1 million
MARR = 6%

Question 8

Modified B/C ratio may be stated as,
Modified B/C ratio = (E.W. of Benefits)/ (E.W. of initial costs + E.W. of operating and maintenance costs).

Question 9

The office of management and Budget (OMB) stipulates that a 7% interest rate be used in economic analysis of federal projects.