Abu Dhabi Tourism Authority is considering building a new Head Office building.

Question

Abu Dhabi Tourism Authority is considering building a new Head Office building. Two alternatives have been identified and their details are shown below. 2. Alternatives Construction (Initial cost) 10,000,000 Dhs Operations& Maintenance Benefits to the Community Dis-Benefits Alternative A Alternative B 8,000,000 Dhs 1,000,000 Dhs/yea 500,000 Dhs/year 3,500,000 Dhs/year2,000,000 Dhs/year 1,000,000 Dhs/year 500,000 Dhs/year Assume the Life Expectancy of Both buildings is 15 years and the MARR is 8% per year. Calculate the B/C ratio and select the best alternative.

Explanation / Answer

2.

R = 8%

n= 15 years

For Alternative A:

Let uniform annual construction cost = UACa

Then,

10000000 = UACa*(1-1/(1+R)^n)/R = UACa * (1-1/(1+8%)^15)/.08

UCAa = 10000000/8.56

UCAa= 1168224 DHs

B/C Ratio = (annual benefits – Disbenefits)/(UCAa + annual O&M cost)

B/C Ratio = (3500000-1000000)/( 1168224+1000000)

B/C Ratio = 1.153

For Alternative B:

Let uniform annual construction cost = UACb

Then,

8000000 = UACb*(1-1/(1+R)^n)/R = UACb * (1-1/(1+8%)^15)/.08

UCAb = 8000000/8.56

UCAb= 934579.4 DHs

B/C Ratio = (annual benefits – Disbenefits)/(UCAb + annual O&M cost)

B/C Ratio = (2000000-500000)/( 934579.4+500000)

B/C Ratio = 1.045

The alternative A should be selected due to its relatively higher 1.153 in comparison to the 1.045 of alternative B.

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