As part of the rehabilitation of the downtown area of a southern U.S. city, the Parks and Recreation Department expects to develop the space below several overpasses into basketball, handball, miniature golf, and tennis courts. The estimates are: initial cost of $190,000, life of 20 years, and annual M&O costs of $21,000. The department expects 20,000 people per year to use the facilities an average of 2 hours each. The value of the recreation has been conservatively set at $1.00 per hour. At a discount rate of 6% per year, what is the B/C ratio for the project?
What will be an ideal response?
C = 190,000(A/P,6%,20) + 21,000
= 190,000(0.08718) + 21,000
= $37,564
B = 20,000(2)(1.00)
= $40,000
B/C = 40,000/37,564
= 1.06
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