Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The federal government is planning a hydroelectric project for a river basin. In
addition to producing electric power, this project will provide flood control, irrigation, and recreational benefits. The estimated benefits and costs expected to be derived from the three alternatives under consideration are listed as follows:

The interest rate is 10%, and the life of each project is estimated to be 50 years.
(a) Find the benefit-cost ratio for each alternative.
(b) Select the best alternative, according to BC(i).

Decision Alternatives
B
Initial cost
$8,000,000 $10,000,000 $15,000,000
Annual benefits:
Power sales
$1,000,000
$1,200,000
$1,800,000
Flood-control savings
Irrigation benefits
Recreation benefits
O&M costs
$250,000
$350,000
$500,000
$350,000
$450,000
$600,000
$100,000
$200,000
$350,000
$200,000
$250,000
$350,000
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Transcribed Image Text:Decision Alternatives B Initial cost $8,000,000 $10,000,000 $15,000,000 Annual benefits: Power sales $1,000,000 $1,200,000 $1,800,000 Flood-control savings Irrigation benefits Recreation benefits O&M costs $250,000 $350,000 $500,000 $350,000 $450,000 $600,000 $100,000 $200,000 $350,000 $200,000 $250,000 $350,000
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