Calculate the B/C ratio for the following cash flow estimates at a discount rate of 10% per year. Is the project justified?
What will be an ideal response?
Put all cash flows in same units of $/year
AW of benefits = 3,800,000(A/P,10%,20)
= 3,800,000(0.11746)
= $446,348
AW of first cost = 1,200,000(A/P,10%,20)
= 1,200,000(0.11746)
= $140,952
(B - D)/C = (446,348 – 45,000)/(140,952 + 300,000)
= 0.91
Project not justified
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