Recent development near Eugene, Oregon, has identifi ed a need for improved access to Interstate 5 at one location. Civil engineers and public planners are considering three alternative access plans. Benefi ts are estimated for the public in general; disbenefi ts primarily affect some local proprietors who will see traffi c pattern changes as undesirable. Costs are monetary for construction and upkeep, and savings are a reduction in cost of those operations today that will not be necessary in the future. All fi gures are relative to the present situation, retention of which is still an alternative, and are annualized over the 20-year planning horizon. Alternative A B C Benefi ts $200,000 $300,000 $400,000 Disbenefi ts $37,000 $69,000 $102,000 Costs $150,000 $234,000 $312,000 Savings $15,000 $31,000 $42,000 a) What is the B/C ratio for each of these alternatives ?b) Using incremental B/C ratio analysis, which alternative should be selected ?c) Determine the value of B - C for each alternative.

Alternative A is selected

Explanation:

Here is the solution to the question:

B=Benefits - Disbenefits

C=Costs-Savings

a.

let us calculate the B/C ratios for the alternatives using the procedure below:

for Alternative A:

B=200000-37000=163000

C=150000-15000=135000

from the above calculation B/C=163000/135000=1.2074

for Alternative B:

B=400000-102000=298000

C=312000-42000=270000

from the above again B/C=298000/270000=1.1037

b.

From the above calculations, B/C ratio is highest for the first Alternative which is Alternative A.

Therefore since Alternative A is highest, Alternative A is selected

c.

Calculate the value B-C for each Alternative.

Alternative A:

B-C=163000-135000=28000

Alternative B:

B-C=231000-203000=28000

Alternative C:

B-C=298000-270000=28000

Explanation:

Alternatives   Benefits($)  Disbenefits($)    Cost($)      Saving($)  

 A              200,000                37,000         150,000         15,000  

 B             300,000                69,000           234,000       31,000

 C             400,000                102,000          312,000      42,000

a) Ratio B : C

i) Benefits⇒ 3 : 4  

ii) Disbenefits⇒  23 : 34

iii) Costs⇒ 3 : 4

iv) Savings⇒ 31 : 40  

b) The savings alternative should be selected based on their close maginal ratio compered to other alternatives.

c) The values are as follows:

i) Benefits: $(300,000 + 400,000) = $700,000

ii) Disbenefit: $(102,000 + 69,000) = $171,000

iii) Cost: $(234,000 + 312,000) = $546,000

iv) Savings: $(31,000 + 42,000) = $73,0000

answer:

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