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Determine The Grant Proposal Assignment Paper

In the past, the Afram Foundation has awarded many grants to improve the living and medical conditions of people in war-torn and poverty-stricken countries throughout the world. In a proposal for the foundation's board of directors to construct a new hospital and medical clinic complex in a deprived central African country, the project manager has developed some estimates. These are developed, so she states, in a manner that does not have a major negative effect on prime agricultural land or living areas for citizens. Award amount: $20 million (end of) first year, decreasing by $5 million per year for 3 additional years; local government will fund during the first year only Annual costs: $2 million per year for 10 years, as proposed Benefits: Reduction of $8 million per year in health-related expenses for citizens Dis-benefits: $0.1 to $0.6 million per year for removal of arable land and commercial districts Use the conventional and modified B/C methods to determine if this grant proposal is economically justified over a 10 -year study period. The foundation's discount rate is 6% per year. Determine The Grant Proposal Assignment Paper
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Step-by-step
Step 1/1

To determine if the grant proposal is economically justified, we need to calculate the benefit-cost ratio (B/C) using both the conventional and modified methods.
Conventional B/C Method:
The conventional B/C method is calculated by dividing the total present value of benefits by the total present value of costs.
Total Present Value of Benefits = (Annual Reduction in Health-related Expenses) * (Present Value Factor for Annuity, 6%, 10 years) Total Present Value of Benefits = $8 million * 6.558 = $52.464 million
Total Present Value of Costs = (Construction Costs) * (Present Value Factor for Sum, 6%, 1 year) + (Annual Operating Costs) * (Present Value Factor for Annuity, 6%, 10 years) Total Present Value of Costs = ($20 million + $2 million * 10 years) * 0.943 + ($2 million * 10 years) * 6.558 Total Present Value of Costs = $32.014 million
Conventional B/C Ratio = Total Present Value of Benefits / Total Present Value of Costs Conventional B/C Ratio = $52.464 million / $32.014 million Conventional B/C Ratio = 1.636 Determine The Grant Proposal Assignment Paper
Modified B/C Method:
The modified B/C method is calculated by adjusting the annual operating costs to include the dis-benefits of the project.
Adjusted Annual Operating Costs = (Annual Operating Costs) + (Dis-benefits) Adjusted Annual Operating Costs = $2 million + ($0.1 million to $0.6 million) Adjusted Annual Operating Costs = $2.1 million to $2.6 million
Total Present Value of Costs = (Construction Costs) * (Present Value Factor for Sum, 6%, 1 year) + (Adjusted Annual Operating Costs) * (Present Value Factor for Annuity, 6%, 10 years) Total Present Value of Costs = ($20 million + $2 million * 10 years) * 0.943 + ($2.1 million to $2.6 million) * 6.558 Total Present Value of Costs = $33.015 million to $33.514 million
Modified B/C Ratio = Total Present Value of Benefits / Total Present Value of Costs Modified B/C Ratio = $52.464 million / $33.015 million to $33.514 million Modified B/C Ratio = 1.587 to 1.567
Conclusion:
Both the conventional and modified B/C ratios are greater than 1, indicating that the benefits of the project outweigh the costs. Therefore, the grant proposal is economically justified over a 10-year study period

Explanationfor step 1

Complete solution of the given question

Determine The Grant Proposal Assignment Paper

Expert Answer

Determine The Grant Proposal Assignment Paper In the past, the Afram Foundation has awarded many grants to improve the living and medical conditions of people in war-torn and poverty-stricken countries throughout the world. In a proposal for the foundation's board of directors to construct a new hospital and medical clinic complex in a deprived central African country, the project manager has developed some estimates. These are developed, so she states, in a manner that does not have a major negative effect on prime agricultural land or living areas for citizens. Award amount:

$20

million (end of) first year, decreasing by

$5

million per year for 3 additional years; local government will fund during the first year only Annual costs:

$2

million per year for 10 years, as proposed Benefits: Reduction of

$8

million per year in health-related expenses for citizens Dis-benefits:

$0.1

$0.6

million per year for removal of arable land and commercial districts Use the conventional and modified B/C methods to determine if this grant proposal is economically justified over a 10 -year study period. The foundation's discount rate is

6%

per year. Determine The Grant Proposal Assignment Paper

ORDER YOUR PAPER NOW

Step-by-step

Step 1/1

To determine if the grant proposal is economically justified, we need to calculate the benefit-cost ratio (B/C) using both the conventional and modified methods.

Conventional B/C Method:

The conventional B/C method is calculated by dividing the total present value of benefits by the total present value of costs.

Total Present Value of Benefits = (Annual Reduction in Health-related Expenses) * (Present Value Factor for Annuity, 6%, 10 years) Total Present Value of Benefits = $8 million * 6.558 = $52.464 million

Total Present Value of Costs = (Construction Costs) * (Present Value Factor for Sum, 6%, 1 year) + (Annual Operating Costs) * (Present Value Factor for Annuity, 6%, 10 years) Total Present Value of Costs = ($20 million + $2 million * 10 years) * 0.943 + ($2 million * 10 years) * 6.558 Total Present Value of Costs = $32.014 million

Conventional B/C Ratio = Total Present Value of Benefits / Total Present Value of Costs Conventional B/C Ratio = $52.464 million / $32.014 million Conventional B/C Ratio = 1.636 Determine The Grant Proposal Assignment Paper

Modified B/C Method:

The modified B/C method is calculated by adjusting the annual operating costs to include the dis-benefits of the project.

Adjusted Annual Operating Costs = (Annual Operating Costs) + (Dis-benefits) Adjusted Annual Operating Costs = $2 million + ($0.1 million to $0.6 million) Adjusted Annual Operating Costs = $2.1 million to $2.6 million

Total Present Value of Costs = (Construction Costs) * (Present Value Factor for Sum, 6%, 1 year) + (Adjusted Annual Operating Costs) * (Present Value Factor for Annuity, 6%, 10 years) Total Present Value of Costs = ($20 million + $2 million * 10 years) * 0.943 + ($2.1 million to $2.6 million) * 6.558 Total Present Value of Costs = $33.015 million to $33.514 million

Modified B/C Ratio = Total Present Value of Benefits / Total Present Value of Costs Modified B/C Ratio = $52.464 million / $33.015 million to $33.514 million Modified B/C Ratio = 1.587 to 1.567

Conclusion:

Both the conventional and modified B/C ratios are greater than 1, indicating that the benefits of the project outweigh the costs. Therefore, the grant proposal is economically justified over a 10-year study period

Explanationfor step 1

Complete solution of the given question

Determine The Grant Proposal Assignment Paper

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