Calculate the Benefit-Cost Analysis Ratio

A city engineer is deciding which of two alternatives to select.  If the interest rate is 10% per year, the Benefit-Cost analysis ratio of the alternative to be selected is most nearly:

Alternative A:

PW of Benefits   = $13,000 (P/A, 10%, 6) 

= $13,000 (4.355) 

= $56,615

PW of Costs     = $48,000

B/C = $56,615/$48,000 = 1.179

Alternative B:

PW of Benefits   = $12,000 (P/A, 10%, 6) 

= $12,000 (4.355) 

= $52,260

PW of Costs     = $40,000

B/C = $52,260/$40,000 = 1.3065

Since B/C of Alternative B is more than Alternative A, select Alternative B.