Neco 2020 Government Question 11

The Ministry has ₦ 80 million to allocate to one of two possible projects, A and B. Project A: initial cost ₦ 50 million, annual benefits of ₦ 20 million, ₦ 22 million, ₦ 24 million and ₦ 26 million in years 1-4 respectively, and an annual maintenance cost of ₦ 3 million. Project B: initial cost ₦ 45 million, annual benefits of ₦ 18 million, ₦ 20 million, ₦ 22 million and ₦ 24 million in years 1-4 respectively, and an annual maintenance cost of ₦ 2 million. The discount rate is (8\%\) per annum. (a) Compute the net present value (NPV) of each project (in millions of naira, rounded to two decimal places). (b) Compute the benefit‑cost ratio (BCR) for each project, where BCR = (present value of benefits) / (present value of costs). (c) Which project should be selected to maximise the benefit‑cost ratio while remaining within the budget? State the project letter.