# BCR of \$180,000 investment yielding \$60,000 annual benefits at 7% annually

Date of Exam

Subject

**Problem**

\$180,000 was spent on the project that yields annual benefit of \$60,000 for a period of 8 years without any salvage value. Determine the benefit-to-cost ratio considering the cost of money to be 7%.

A. 1.99 | C. 1.57 |

B. 2.21 | D. 2.63 |

**Answer Key**

## Click here to show or hide the answer key

[ A ]

**Solution**

## Click here to expand or collapse this section

Present amount of all future benefits

$P = \dfrac{A[ \, (1 + i)^n - 1 \, ]}{(1 + i)^n \, i}$

$P = \dfrac{A[ \, (1 + i)^n - 1 \, ]}{(1 + i)^n \, i}$

$P = \dfrac{60,000[ \, (1 + 0.07)^8 - 1 \, ]}{(1 + 0.07)^8 (0.07)}$

$P = \$358,277.91$

Benefit-Cost Ratio

$\text{BCR} = \dfrac{358,277.91}{180,000}$

$\text{BCR} = 1.99$ ← *answer*

- Log in to post comments