Question

9-38 Burns City may build a garbage incinerator on the outskirts of town. Environmental impact statements and safety planning/inspection will cost $21,000 (payable at start of construction). The annual upkeep and operating costs are expected to be $34,000. The new incinerator will save $14 each annually for 24,000 billed customers. Consultants have estimated an annual disbenefit to the surrounding area of $36,500. At the end of a 10-year useful life the incinerator will be dismantled at a cost of $50,000. Using benefit-cost ratio analysis, and assuming a cost of money of 5% what is the maximum that Burns City can pay to build the incinerator? Contributed by Ed Wheeler, University of Tennessee, Martin

          9-38 Burns City may build a garbage incinerator on the outskirts of town. Environmental impact statements and safety planning/inspection will cost $21,000 (payable at start of construction). The annual upkeep and operating costs are expected to be $34,000. The new incinerator will save $14 each annually for 24,000 billed customers. Consultants have estimated an annual disbenefit to the surrounding area of $36,500. At the end of a 10-year useful life the incinerator will be dismantled at a cost of $50,000. Using benefit-cost ratio analysis, and assuming a cost of money of 5% what is the maximum that Burns City can pay to build the incinerator? Contributed by Ed Wheeler, University of Tennessee, Martin

9 38 burns city may build a garbage incinerator on the outskirts of town environmental impact statements and safety planninginspection will cost 21000 payable at start of construction the an 31628

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