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The Adams Construction Company is bidding on a project to install alarge flood drainage culvert from...

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Finance

The Adams Construction Company is bidding on a project toinstall alarge flood drainage culvert from Dandridge to adistantlake. The cost and benefits
are shown below. Use the Present Worth conventional and modifiedBenefit-Cost ration method to make a recommendation.Draw Cash FlowDiagram
Initial investment = $2 million
Right of way maintenance cost = $30,000 per year
Major upkeep every six years = $50,000
Annual benefits to the taxpayers = $135,000 per year
Life of the project = 12 years
MARR = 6%

Answer & Explanation Solved by verified expert

4.1 Ratings (716 Votes)

Present worth = -1,179,792.88 so do not accept it (refer table below for calculations)

Discount rate	6.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
Â Â Â Â Â Â Â Â Â Â Â (2,000,000.000)	0	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (2,000,000.00)	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (2,000,000.00)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	1	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 99,056.60	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,900,943.40)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	2	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 93,449.63	Â Â Â Â Â Â Â Â Â Â Â Â Â (1,807,493.770)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	3	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 88,160.02	Â Â Â Â Â Â Â Â Â Â Â Â Â (1,719,333.745)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	4	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 83,169.83	Â Â Â Â Â Â Â Â Â Â Â Â Â (1,636,163.911)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	5	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 78,462.11	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,557,701.80)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 55,000.000	6	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 38,772.83	Â Â Â Â Â Â Â Â Â Â Â Â Â (1,518,928.973)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	7	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 69,831.00	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,449,097.98)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	8	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 65,878.30	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,383,219.68)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	9	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 62,149.34	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,321,070.34)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	10	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 58,631.45	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,262,438.89)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 105,000.000	11	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 55,312.69	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,207,126.20)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 55,000.000	12	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 27,333.31	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1,179,792.88)

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