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Unformatted text preview: Chapter 7 7.1 The primary purpose of public sector projects is to provide services for the public good at no profit. 7.2 eBay - private, farmer’s market - private, state police department – public, car racing facility - private, social security – public, EMS - public, ATM - private, travel agency- private, Six Flags amusement park - private, gambling casino - private, swap meet - private. 7.3 Large initial investment - public, short life projects - private, profit - private, disbenefits - public, tax-free bonds - public, subsidized loans – public, low interest rate - public, income tax – private, water quality standards – public. 7.4 Disbenefits are consequences to people while costs are consequences to government; disbenefits are considered in the numerator of a B/C ratio while costs are in the denominator. 7.5 (a) $400,000 annual income to local businesses because of tourism created by new national park - benefit (b) Cost of fish from hatchery to stock lake at state park - cost (c) Less tire wear because of smoother road surface - benefit (d) Decrease in property values due to closure of gov’t research lab - disbenefit (e) School overcrowding because of military base expansion - disbenefit (f) Additional revenue to local motels because of extended national park season – benefit 7.6 A BOT project is one that involves a public-private partnership wherein the private partner is responsible for building, operating, and subsequently transferring the project to a governmental entity. 7.7 Benefits and disbenefits might exactly offset each other because benefits to one part of the general population might represent disbenefits to a different part of the population. For example, reduced traffic accidents are good for motorists but bad for tow- truck owners 7.8 The salvage value placed in the denominator because it is a recovery of cost, which is a consequence to the government. 7.9 A modified B/C analysis has only the initial investment cost in the denominator. 7- 1 7.10 B = $285,000 C = 12,000,000(A/P,6%,40) + 1,100,000 = 12,000,000(0.06646) + 1,100,000 = 797,520 + 1,100,000 = $1,897,520 B/C = 285,000/1,897,520 = 0.15 7.11 Convert all cash flows to AW B = 3,800,000(A/P,8%,20) = 3,800,000(0.10185) = $387,030 D = $65,000 C = 1,200,000(A/P,8%,20) + 300,000 = 1,200,000(0.10185) + 300,000 = $422,220 B/C = (387,030 – 65,000)/ 422,220 = 0.76 7.12 The total cost (TC) has to be $800,000....
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This note was uploaded on 03/24/2011 for the course ISEN 302 taught by Professor Ko during the Spring '08 term at Texas A&M.
- Spring '08