PAD 6227 Capital Budget Exercise

1. Two public infrastructure projects have the economic profiles that follow:

Use these data to compute for each

a) The NPV at discount rate of 10 and 5 percent

b) The BCR at the same rates

Describe the facts about the projects that would dictate which criterion is appropriate and indicate which project is preferable under each circumstance

Option A									Option B
Year	Capital Cost ($)			Operating and Maintenance Cost ($)			Benefit($)			Capital Cost ($)			Operating and Maintenance Cost ($)			Benefit($)
1	2,000,000			0			0			2,500,000			0			0
2	1,000,000			10,000			0			500,000			50,000			750,000
3		500,000			70,000			120,000				100,000			750,000
4			90,000			600,000					100,000			750,000
5			90,000			800,000					100,000			750,000
6			90,000			800,000					100,000			750,000
7			90,000			800,000					100,000			750,000
8			90,000			800,000					100,000			750,000
9			100,000			800,000					100,000			750,000
10			100,000			500,000					100,000			300,000