The B/C ratio for a mosquito control program proposed by the Harris County Department of Health is reported to be 2.1. The person who prepared the report stated that the annual health benefits were estimated to be $400,000, and that disbenefits of $25,000 per year were used in the calculation. He also stated that the costs for chemicals, machinery, maintenance, and labor were estimated at $150,000 per year, but he forgot to list the cost for initiating the program (trucks, pumps, tanks, etc.). If the initial cost was amortized over a 10-year period at 8% per year, what is the estimated initial cost?

Question

What will be an ideal response?

Answer 1

C = P(A/P,8%,10) + 150,000
= P(0.14903) + 150,000
B - D = 400,000 – 25,000
B/C = (400,000 – 25,000)/[P(0.14903) + 150,000]
2.1 = 375,000/[P(0.14903) + 150,000]
2.1[P(0.14903) + 150,000] = 375,000
P = $191,716