A consultant, after 3 months of work, reported that the modified B/C ratio for a city-owned hospital heliport project is 1.7. If the initial cost is $1 million and the annual benefits are $150,000, what is the amount of the annual M&O costs used in the calculation? The report stated that a discount rate of 6% per year and an estimated life of 30 years were used.
What will be an ideal response?
AW of C = 1,000,000(A/P,6%,30)
= 1,000,000(0.07265)
= $72,650
Modified B/C = (B - M&O costs)/initial investment
1.7 = (150,000 – M&O)/72,650
1.7(72,650) = 150,000 – M&O
M&O = $26,495
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