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Economics: Benefit-cost ratio.

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The NJ Garden State Parkway is planning to add more lanes in their northern corridor. They need to decide between two alternatives MM and PP. MM requires an initial investment of $18 million and $300,000 in annual costs. PP requires an initial investment of $18 million and $ 400,000 in annual cost. The annual benefits from the project will be $3 million for MM and $4 million for PP. Assume an infinite life and discount rate of 8% per year.

a) Calculate the Modified BCR for MM.
b) Calculate the Modified BCR for PP.
c) Which alternative should NJGSP choose and why?

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Solution Summary

The problem deals with estimating the benefit-cost ratio from provided information.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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