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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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