To reduce flood damage in a river valley in Southern Luzon, a flood control dam is being proposed for construction. The initial cost is estimated to be P4,600,000, with annual maintenance and inspection costs of P24,000. Every 5 years, minor reconstruction work will be undertaken on the dam at a cost of P150,000. If the dam is built, flood damage is expected to be reduced from P800,000 to P100,000 annually. Assuming the dam to be permanent and the interest rate is 8%, should the dam be built?
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BENEFIT-COST RATIO ANALYSIS
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- Using the B/C ratio method To reduce flood damage in a river valley in Southern Luzon, a flood control dam is being proposed for construction. The initial cost is estimated to be P4,600,000, with annual maintenance and inspection costs of P24,000. Every 5 years, minor reconstruction work will be undertaken on the dam at a cost ofP150,000. If the dam is built, flood damage is expected to be reduced from P800,000 to P100,000 annually. Assuming the dam to be permanent and the interest rate is 8%, should the dam be built?The average annual cost of damages caused by floods to certain subdivision located along Pasig River is estimated at P700,000. To build a gravity dam to protect the area from the floods, would cost P2,500,00.00 and would involved an annual maintenance cost of P20,000.00. With interest at 8% compounded annually, how many years will it take for the dam to pay for itself?To decrease costs of operating a lock in a large river, a new system of operation is proposed. It will cost P450,000 to design and build. It is estimated that it will have to be reworked every 10 years at a cost of P50,000. I addition, there will be an expenditure of P40,000 at the end of the fifth year for a new type of gear that will not be available until then. The annual operating costs are expected to be P30,000 for the first 15 years and P25,000 a year thereafter. Compute the capitalized cost of perpetual service at i=12%.
- The Cebu City plans to increase the capacity of her existing water transmission lines. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P197,342,811 and the life is 40 years, with an annual operating cost of P8,450,154 for the 1st 20 years and P13,297,046 for the next 20 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 40 years. The pumping equipment cost an additional amount of P25M, it has a life of 20 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 21% cpd. annually, what is the PV of Plan A?The average annual cost of damages caused by floods to a certain subdivision located along Pasig River is estimated at Php 700,000. To build a gravity dam to protect the area from floods, would cost Php 2.5M and would involve an annual maintenance cost of Php 20,000.00. With interest rate at 8% compounded annually, how many years will it take for the dam to pay for itself?Two methods of carrying away surface runoff water from a new subdivision are being evaluated: METHOD A: Dig a ditch. The initial cost would be P3 million and P1 million of redigging and shaping would be required at five-year intervals forever. METHOD B: Lay concrete pipe, The initial cost would be P7.5 million, and replacement pipe would be required at 50-year intervals at a net cost of P9 million indefinitely. At i = 12%, which method is the better one in terms of having a smaller cost?
- The city of Zamboanga contemplates to increase the capacity of their existing water transmission lines. Two plans are under considerations. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial costs is P2, 750, 000.00 and the life is 40 years, with an annual operating cost of P5, 000.00. Plan B requires the construction of a booster pumping stations coating P1, 050, 000.00 with the life of 40 years. The pumping equipment cost an additional amount of P250, 000.00, it has a life of 20 years and a salvage value of P25, 000. The annual operating costs is P165, 000.00. Which is the most economical plan if the interest rate is 12% and how much is the difference between the two plans. Use present worth method.Two methods of carrying away surface runoff water from a new subdivision are being evaluated:(a) Method A: Dig a ditch. The initial cost would be $30,000, and $10,000 ofredigging and shaping would be required at five-year intervals forever.(b)Method B: Lay concrete pipe. The initial cost would be $75,000, and replacement pipe would be required at 50-year intervals at a net cost of $90,000 indefinitely.At i = 12%, which method is the better one? (Hint: Use the capitalized-equivalent-worth approach.)The government plans to increase the capacity of her existing water transmission lines in Cebu City. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P182,947,337 and the life is 50 years, with an annual operating cost of P5,725,635 for the 1st 25 years and P11,441,794 for the next 25 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 50 years. The pumping equipment cost an additional amount of P25M, it has a life of 25 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 23% cpd. annually, what is the PV of Plan A?
- An Army Corps of Engineers project for improving navigation on theOhio River will have an initial cost of $6,500,000 and annualmaintenance of $130,000. Benefits for barges and paddle wheel touringboats are estimated at $820,000 per year. The project is assumed to bepermanent and the discount rate is 8% per year. Determine if theCorpsshould proceed with the project.The city of San Fernando contemplates to increase the capacity of her existing water transmission lines. Two plans are under consideration. plan a requires the construction of a parallel pipeline , the flow being maintained by gravity. The initial cost is 2,750,000 and the life is 40 years, with an annual operating cost of 5,000. Plan B requires the construction of a booster pumping station costing 1,050,000 with the life of 40 years. The pumping equipment cost an additional amount of 250,000. It has a life of 20 years and a salvage value of 25,000. The annual operating cost is 165,000. Which is the most economical plan if the interest rate is 12% and how much is the difference between the two plans. Use Present worth Method.A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be approximately $18,000 per year over the six-year study period. At MARR of 19%, calculate the future worth of the project, the return on investment of the project, benefit-cost ratio of the project, the internal rate of return of the project.