A site on a major river is being evaluated for a new lock and dam for navigation purposes. Two options are considered: (a) single 1200-foot lock or (b) single 1200-foot lock and a single 600-foot lock (two locks, side by side). Benefits and costs of the two options are indicated in the table. Interest rate to be used is 7%, and the planning period is 50 years. Initial cost Annual operating cost Annual benefit Single Lock ($ million) 60.0 1.0 12.0 Double Locks ($ million) 85.0 1.5 16.0 (a-5 pts) Show the cash flow table for both options. (You may show only for the first three years as the same numbers will repeat for the remaining planning period.) (b-10 pts) Solve by the present worth method. (c-10 pts) Solve by the annual cash flow method. (d-10 pts) Solve by the incremental benefit-cost ratio method. (e-5 pts) Check your solutions for (b), (c), and (d). Are they different? Explain.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A site on a major river is being evaluated for a new lock and dam for navigation purposes.
Two options are considered: (a) single 1200-foot lock or (b) single 1200-foot lock and a
single 600-foot lock (two locks, side by side). Benefits and costs of the two options are
indicated in the table. Interest rate to be used is 7%, and the planning period is 50 years.
Initial cost
Annual operating cost
Annual benefit
Single Lock
($ million)
60.0
1.0
12.0
Double Locks
($ million)
85.0
1.5
16.0
(a-5 pts) Show the cash flow table for both options. (You may show only for the first
three years as the same numbers will repeat for the remaining planning period.)
(b-10 pts) Solve by the present worth method.
(c-10 pts) Solve by the annual cash flow method.
(d-10 pts) Solve by the incremental benefit-cost ratio method.
(e-5 pts) Check your solutions for (b), (c), and (d). Are they different? Explain.
Transcribed Image Text:A site on a major river is being evaluated for a new lock and dam for navigation purposes. Two options are considered: (a) single 1200-foot lock or (b) single 1200-foot lock and a single 600-foot lock (two locks, side by side). Benefits and costs of the two options are indicated in the table. Interest rate to be used is 7%, and the planning period is 50 years. Initial cost Annual operating cost Annual benefit Single Lock ($ million) 60.0 1.0 12.0 Double Locks ($ million) 85.0 1.5 16.0 (a-5 pts) Show the cash flow table for both options. (You may show only for the first three years as the same numbers will repeat for the remaining planning period.) (b-10 pts) Solve by the present worth method. (c-10 pts) Solve by the annual cash flow method. (d-10 pts) Solve by the incremental benefit-cost ratio method. (e-5 pts) Check your solutions for (b), (c), and (d). Are they different? Explain.
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