Review Questions & Problems
I. Please select the most appropriate answer:
1) A public service agency intends to establish a new program which requires $9.3
million initial cost and $1.1 million annual cost. Expected life of the program is 20
years and the expected annual benefit is $2.3 million. If the discount rate is 8%
(uscrf 8%, 20yrs =0.1019), then the B/C ratio is equal to:
A. 1.02% B. 1.12% C. 1.22% D. 1.32%
2) A public service agency intends to establish a new program which requires $9.3
million initial cost and $1.1 million annual cost. Expected life of the program is 20
years and the expected annual benefit is $2.3 million. If the discount rate is 8%
(uscrf 8%, 20yrs =0.1019), then the net annual benefit is equal to:
A. $0.45 million B. $0.35 million C. $0.25 million D. $0.15 million
3) A state highway department is considering the construction of a new highway. Its
initial cost is $35 million with annual OMR $1.3 million. The expected annual benefit
is $5.1 million. The road is expected to be useful for 25 years and discount rate is
7% (uspwf 7%, 25 yrs = 11.654). Then its B/C ratio is equal to:
A. 1.19% B. 1.18% C. 1.17% D. 1.16%
4) A state highway department is considering the construction of a new highway. Its
initial cost is $35 million with annual OMR $1.3 million. The expected annual benefit
is $5.1 million. The road is expected to be useful for 25 years and discount rate is
7% (uspwf 7%, 25 yrs= 11.654). Then its net PW of benefit is equal to:
A. $6.3 million B. $7.3 million C. $8.3 million D. $9.3 million
5) The General Authority for Housing and Construction is considering building a
housing project for low income households. The expected initial cost is $54 million,
annual OMR is $2.5 million; annual benefit $8.3 million, life of the project is 30 yrs,
discount rate is 6% (uspwf 30 yrs, 6%= 13.765). Then the net PW of benefit of this
project is equal to:
A. 1.29% B. 1.39% C. 1.49% D. 1.59%
6) The General Authority for Housing and Construction is considering building a
housing project for low income households. The expected initial cost is $54 million,
annual OMR is $2.5 million; annual benefit $8.3 million, life of the project is 30 yrs,
discount rate is 6% (uspwf 30 yrs, 6%= 13.765). Then the net PW of benefit of this
project is equal to:
A. $23.84 million B. $24.84 million C. $25.84 million D. None of the above
7) The General Authority for Housing and Construction is considering building a
housing project for low income households. The expected initial cost is $62 million,
annual OMR is $2.4 million; annual benefit $9.2 million, life of the project is 30 yrs,
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discount rate is 6% (uspwf 30 yrs, 6%= 13.765). Then the B/C ratio of this project is
equal to:
A. 1.13% B. 1.23% C. 1.33% D. None of the above
8) The General Authority for Housing and Construction is considering building a
housing project for low income households. The expected initial cost is $62 million,
annual OMR is $2.4 million; annual benefit $9.2 million, life of the project is 30 yrs,
discount rate is 6% (uspwf 30 yrs, 6%= 13.765). Then the net PW of benefit of this
project is equal to:
A. $30.62 million B. $31.62 million C. $32.62 million D. None of the above
9) Three alternative routes (X,Y&Z) are under consideration for a new highway. They
all will function for 30 yrs. The initial cost of X is $76 million and its OMR is $1.2
million. The initial cost of Y is $58 million and its OMR is $2.3 million. The initial cost
of Z is $45 million and its OMR is $4.3 million. Which alternative is the most feasible
if the discount rate is 8% (uscrf 8%, 30yrs. =0.0888):
A. Route X B. Route Y C. Route Z D. None of the above
10) Three alternative routes (X,Y&Z) are under consideration for a new highway. They
all will function for 30 yrs. The initial cost of X is $75 million and its OMR is $2.2
million. The initial cost of Y is $58 million and its OMR is $3.8 million. The initial cost
of Z is $49 million and its OMR is $4.8 million. Which alternative is the most feasible
if the discount rate is 6% (uspwf 30 yrs, 6%= 13.765):
A. Route X B. Route Y C. Route Z D. None of the above
11) A developer is planning to construct an irrigation system for a national public park.
Two alternative systems are proposed X & Y. Alternative X can function for 15 years,
while Y is expected to last for 30 years. Their initial costs are $7.8 million, and
$11.4 million respectively. Annual OMR costs are $2.6 million for X and $2.3 million
for Y. If the discount rate is 8% (uscrf 8%, 15yrs=0.1168, uscrf 8%, 30yrs. =0.0888),
then the more feasible alternative is:
A. Alternative X B. Alternative Y C. None of the above
12) Alexandria city studies the construction of a bridge in the downtown area. Two
alternatives are considered X & Y. The estimated initial cost of X is $33 million, its
annual OMR is $1.8 million. The initial cost of Y is $39 million, its annual OMR is
$1.5 million. If discount rate is 5% and both alternatives are expected to function
for 25 years (uspwf 25 yrs, 5%=14.094), the more feasible alternative is:
A. Alternative X B. Alternative Y C. None of the above
II. Solve the following problems:
1) A public service agency intends to establish a program to support the old aged
people in the remote governorates. The program requires $2,000,000 initial cost
and $5,850,000 annual cost. This programs extends to 25 years and is expected
to provide 3,600 families with $150 worth of monthly benefits. Rate of return is
7%. Based on B/C ratio, determine the feasibility of this program.
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2) A state highway department is considering the construction of a new highway.
Its initial cost is $4,000,000, with annual upkeep $20,000. The expected annual
benefit is $350,000. The road is expected to be useful for 25 years and discount
rate is 6%. Determine if this road should be constructed using the a) B/C ratio
method and b) B-C method.
3) The ministry of irrigation and land reclamation is considering a project to extend
irrigation canals into a desert area. Initial cost is $1,500,000 and annual
maintenance costs of $25,000. Annual agricultural revenue is expected to be
$175,000. If the study period is 25 years and interest rate is 6%, determine
whether the project should be undertaken using the B/C ratio.
4) The General Authority for Housing and Construction is considering building a
housing project for low income households. The expected initial cost is
$30,000,000; annual OMR cost is $600,000; annual benefit $2,800,000; life
time of the project is 30 years; and discount rate 6%. Calculate the B/C ratio
for this project and determine whether it is feasible or not using the present
worth method. (uspwf 30y, 6% = 13.765)
5) A social service agency intends to establish a program to support women headed
households in a rural governorate. The program requires $250,000 initial cost.
Annual expenses include: $1,650,000 financial aid, $120,000 training expenses,
$150,000 staff wages and salaries, and $25,000 other expenses. This programs
extends to 5 years and is expected to help 1,000 of those women to increase
their family monthly income by $250. Using the B/C ratio method, determine the
feasibility of this program if the discount rate is 6% (uspwf 6% 5yrs =4.2124,
uscrf 6% 5yrs= 0.2374, pwf 6% 5yrs= 0.7473).
6) Two routes (X&Y) are under consideration for a new highway. Following are their
benefit and cost data:
Route X Route Y
Construction cost $7,600,000 $7,000,000
Annual maint. cost $12,000 $28,000
Annual users’ cost $260,000 $325,000
If the two routes are assumed to last for 30 yrs., interest rate is 8%, determine
which route to accept using B/C ratio (uscrf 8%, 30yrs. =0.0888).
7) A developer is planning to construct an irrigation system for the green areas of
a new residential area. Two types of pipes are available: the first one is
expected to last for 10 years, while the second type is expected to last for 20
years. Their initial costs are $1,600,000 and $2,200,000 respectively. Renewal
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cost is $800,000. Annual OMR costs are $6,000 and $8,000 respectively. Using
6% discount rate, determine which alternative is more feasible. (uspwf 6%, 20
years = 10.594, pwf 6%, 10 years= 0.5083)
8) The ministry of construction and new settlements is planning to connect the
Red Sea and Qena governorates by a new desert road. There are two proposed
routes for this road. Route A is 120 km long and route B is only 95km.
Construction costs are $80,000/km for route A and $125,000/km for route B.
Annual OMR is $500/km, and road-user cost is $0.15/km for both routes. The
expected number of users is 40,000 vehicles annually. If the two roads are
assumed to last for a long time and interest rate is 5%, determine which route
is more economically feasible using B/C ratio method.
9) Two routes are under consideration for a new highway. The long route is 22
miles and would have initial cost of $21 million, and upkeep annual cost of
$40,000/mile. The across mountain (shorter) route is 10 miles long and would
have initial cost of $45 million and annual upkeep cost of $65,000. Regardless
of which route is selected, expected annual traffic volume is 400,000 and
traffic expense is $0.12 per mile. Assume a 30 year life for each route and
interest rate 6%.Determine which route to select using the incremental B/C
ratio.
10) Two routes (X&Y) are under consideration for a new highway. Following are
benefit and cost data of both routes:
Route X Route X
Construction cost $1,200,000 $2,100,000
Annual OMR cost $13,000 $9,000
Annual users’ cost $130,000 $198,000
If the two routes are assumed to last for 30 yrs., interest rate is 8%, determine
which road is more feasible using B/C ratio (uscrf, 8%,30yrs =0.0888)
11) Port Said city studies the construction of a bridge in the downtown area. Two
alternative construction methods are under consideration. The estimated initial
cost of the first alternative is $2,300,000, its annual OMR is $18,000. The initial
cost of the second alternative is $1,900,000, annual OMR cost is $36,500.
Determine which alternative is more feasible if interest rate is 5%. Both
alternatives are expected to function for 50 years.
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12) An oil and gas company is considering five sizes of pipe for a new pipeline.
The cost for each one are shown below (in$1000). Assuming that all pipes will
last for 25 years and discount rate is 8%. Which alternative should be used
according to the incremental B/C method (based on annual equivalent
method).
Alternative A B C D E
Initial cost 19,000 20,000 13,000 15,000 18,000
Annual OMR 1,000 1,200 2,500 1,800 3,000
Annual income 3,000 3,500 4,300 3,650 4,950
13) The sanitation department intends to construct a new sewage treatment project.
There are five different alternatives that could be applied. Following are the
benefit and cost associated with each method. Assuming that these alternatives
have a 20 yrs life with zero salvage value and a minimum attractive rate of
return is 15%, determine which one should be selected using the incremental
B/C ratio method. (use the annual equivalent cost and benefit).
Alternative A B C D E
Initial cost 50,000 70,000 45,000 53,000 68,000
Annual OMR 20,000 12,000 25,000 23,000 13,000
Annual income 15,000 25,000 19,000 22,000 27,000
14) A national ceramic company is studying 4 mutually exclusive new alternative
projects. The cost and income of each one is shown below (in $1000). Life of
each of these projects is 20 years, and interest rate is 8%. Based on your
evaluation of the incremental B/C ratios, which one should be selected (use the
present worth of cost and benefit).
Alternative A B C D
Initial cost 12,000 9,000 8,000 15,000
Annual OMR 2,500 1,500 1,000 2,800
Annual income 4,000 3,000 2,000 5,500
15) The government wants to construct a bridge on the River Nile in Aswan, there
are 4 proposed sites for this project. Following are the construction and annual
cost and benefits for these alternative (in $1000). If interest rate is 8%, life of
the project is 30 yrs., Determine which one is the most feasible site for building
the bridge using the B/C ratio method (based on present worth of costs and
benefits).
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Alternative A B C D
Initial cost 6,000 8,000 5,000 9,000
Annual OMR 300 200 500 600
Annual income 890 990 1,250 1,600
