2 The plan for one of the Princes Islands in Istanbul is to

2) The plan for one of the Princes\' Islands in Istanbul is to ban vehicular traffic on the main street and turning this street into a pedestrian mall with tree plantings and other beautification features. This plan will involve actual costs of 4.7 million TL and, according to its proponents, the plan will produce benefits and disbenefits to the town as follows: Benefits: Increased sales tax revenue per year Increased real estate property taxes per year335,000 TL Benefits due to decreased air pollution per Quality of life improvements to users per year 520,000 TL 110,000 TL 50,000 TL * Disbenefits: Incr eased maintenance per year 185,000 TIL Compute the conventional B-C ratio of this plan based on a MARR of 10% per year and a 23-year project life. Use AW as the equivalent worth method. ___--- Benefits (AW): Disbenefits (AW): Costs (AW) (9 points) (9 points) (10 points) nventi0 Benefits reduced by amount of disbenefits ati (10 points) Accept? (5 points) Costs increased by amount of disbenefits (10 points) Accept? (5 points)

Solution

Benefits (AW) = increased sales tax revenue/ year + increased property tax/ year + benefits of decrease in pollution/ year + benefit of quality of life per year

Benefits (AW) = 520000 + 335000 + 110000 + 50000 = 1015000 TL

Disbenefits (AW) = increased maintenance per year = 185000 TL

Let, UAC = AWc

Then,

4700000 = AWc*(1-1/1.1^23)/.1 = AWc*8.8832

AWc = 4700000/8.8832

AWc = 529087.5 TL

So,

Cost (AW) = 529087.5 TL

Benefits reduced by amount of disbenefits = 1015000 – 185000 = 830000 TL (accepted)

Cost increased by amount of disbenefits = 529087.5 + 185000 = 714087.5 TL

Conventional B-C ratio = Benefits (AW) / (Cost (AW) + Disbenefits (AW))

Conventional B-C ratio = 1015000/(529087.5 + 185000)

Conventional B-C ratio = 1.42

Since the conventional B-C ratio is more than 1, so project should be accepted.